Baldwin v. Reynolds , 111 C.C.A. 114 ( 1911 )

HOLLISTER, District Judge

(after stating the facts as above). The case turns on the contract of June 22, 1899, between Mrs. Baldwin, by her attorney, J. F. Baldwin, and Thomas J. Reynolds, by which he or the person or corporation he might name agreed to pay for the last five of his notes aggregating $16,000 and $330 interest, the sum of $10,330, she retaining the notes as collateral security. Mrs. Baldwin denies its binding force on the ground that it is an executory agreement, the terms of which were not complied with by Reynolds, or any one for him or in his stead. She repudiates also the agreement of May 13, 1903, between Hafner and Marsh under which this suit to enforce the lien for $19,000 balance of the purchase money under the original agreement between W. H. Baldwin and Reynolds was brought by her in her name, but claimed by the Standard Lumber Company to he for its and her joint benefit; for the reason that •Plainer had no authority to make it and by it extend the payment of the consideration of the agreement of June 22, 1899. She claims, therefore, that the amount decreed her by the court below was $6,000 and interest less than the amount she is entitled to.

The issues' in the case here are based on these claims, and are between Mrs. Baldwin and the Standard Lumber Company alone, as she is the sole appellant.

[1] The contract of June 22, 1899, is not on its face executory. It is presumptive evidence of an actual sale, the title to the notes passing at once. 24 Am. & Eng. Enc. of Law, p. 1051, and cases cited. This presumption is not affected by the retention by the seller of the possession of the notes as security. Beardsley v. Beardsley, 138 U. S. 262, 11 Sup. Ct. 318, 34 L. Ed. 928; Morse v. Sherman, 106 Mass. 430.

The offer to sell was drawn by J. F. Baldwin, Mrs. Baldwin’.-, attorney. It was afterwards read to her, and she had full knowledge of its terms. Being thus prepared, it should be most strongly construed against her. Robinson v. Alger (C. C. A. 2d Cir.) 167 Fed. 968, 970, 93 C. C. A. 368.

But the real test to be applied to the instrument in ascertaining its character is not furnished by its form or language except so far as they may reflect upon the intention of the parties, for whether or not an agreement for a sale is effective to pass title of the subject-matter is to be determined by the intention of the parties gathered from the instrument itself and all the circumstances of the case. As said by Judge Warrington, speaking for this court in Hoffman v. Gosslein, 172 Fed. 113, 96 C. C. A. 318:

“Nothing, perhaps, is better settled than that the intention of the parties must be given controlling effect in issues concerning the passing of title to personal property.”

The document consists of an offer to sell to Reynolds or any one named by him the last five of the Reynolds notes and of an acceptance the same day by him in writing. In it Mrs. Baldwin expressed a desire to settle the entire land transaction, and collect as soon as possible all moneys coming to the estate of her deceased husband (she at that time was the owner of the notes as her husband’s sole legatee), and it is recited that the offer was made with that purpose in view. Doubtless most agreements by which a creditor agrees to take less than his debt are based upon similar reasons, though the. writing between the parties may be silent on the subject.

The whole transaction from the beginning shows a willingness on the part of W. H. Baldwin in his lifetime, and after his death by Mrs. Baldwin represented by J. F. Baldwin with full authority, to accept a smaller amount in payment of the debt. The agreement of January 5, 1899, by which the Standard Dumber Company was to have a discount of $5,000, provided in its very terms that, if the company should fail to complete the purchase by July 1, 1899, nevertheless the third Reynolds note for $3,000 due January 1, 1899, was to be considered as paid as between Mrs. Baldwin and the Dumber Company, though it should continue in full force as to Reynolds, and perhaps subordinate in right of payment to the other Reynolds notes of later date.

Why that agreement was abandoned does not appear, but nine days before the time fixed for the completion of the purchase of all the notes by the Standard Dumber Company the new agreement of June 22, 1899, was made. From that agreement the third note due July 1, 1899, was omitted as if no longer outstanding even as between Mrs. Baldwin and Reynolds, and the balance on the original notes was fixed at their face $16,000, with $330 interest due July 1, 1899. It is . probable, as suggested by Judge Cochran, that, when it appeared that the Dumber Company was unable to complete the purchase, Reynolds, as the owner of almost all of its stock and its president, sought and obtained further time and better terms for his company, which were embodied in the contract of June 22d, since the purchase price was thereby reduced by a further $1,000, making the entire reduction $6,-000, the amount in controversy between the parties here.

The final agreement of sale will be searched in vain tor any indication that the parties intended that, if the deferred payments were not made at the times fixed, the agreement should be void. J. F. Baldwin drew the receipt of January 5th and the offer of sale of June 22d. In the preparation of the first he dealt with the possibility of failure on the part of the Lumber Company to complete the sale under its terms. In the second no mention is made in any way of a possible failure of Reynolds or the person whom he might name to perform what he agreed to perform. J. F. Baldwin was a lawyer known to the writer of this opinion as a careful, faithful' practitioner at the Cincinnati bar. If he had contemplated the failure of a compliance by the purchaser with the terms of this sale and have intended that the payment of the consideration by the purchaser was a condition precedent to the passing of the title of the notes, or that the rights of the purchaser should be forfeited in the event of the failure to comply with the terms of the agreement, he would have incorporated such an intention in the paper itself. Indeed, any lawyer of’ ordinary experience would have done so. If the intention of the parties was as Mrs. Baldwin claims, then the $3,130 paid on the day the offer and the acceptance were made would have been lost to the Lumber Company as the real acceptor of Mrs. Baldwin’s offer, unless the deferred payments were also made. The company at that time being the owner of the third note would scarcely have made such a large cash payment on any other understanding than that thereby and by its promise to pay the balance it became the actual owner of the notes.

J. F. Baldwin undoubtedly supposed on the day the offer was made and accepted that the Lumber Company paying that day nearly one-third of the purchase price in cash would be able to pay the balance. The provision for the retention of the notes and lien as security is most significant:

“The above-mentioned notes and purchase-money liens to secure same to be retained by said Isabella O. Baldwin until said last three named payments shall be made.”

She did not deliver the notes into the hands of the purchaser because she proposed to retain them, and did retain them, to secure to herself the fruits of the contract. The language, “until said last three named payments shall be made,” does not limit the holding of the security to the time fixed for the deferred payments, and delivery when they were made, nor does it suggest a reverting ownership in the notes if the payments were not made when promised. The security was to be held until those deferred payments were made, whatever the time might be. Of course, if they were not made, Mrs. Baldwin could enforce her security by foreclosing the lien which secured the payment of the notes out of the land.

It is significant that the time of payment of the purchase money under the agreement evidenced by the receipt of J anuary 5, 1899, was not of the essence of that contract, and it cannot be reasonably doubted that the payment of the $11,000 consideration in that agree-m'ent within a reasonable time after-July 1„.1899, would .have required Mrs. Baldwin to deliver the notes to the Lumber Company.

. .Further,-1899 was in a period of- country-wide financial depression. Much of the timber had been cut off of the land, and.there was probably no market for land of that kind: Mrs. Baldwin wanted money. Reynolds was insolvent-and could not pajr, but his. lumber cpmpany could and did pay $3,130 in- cash. It.-was ..fortunate for her that any one was willing to buy those notes who could make a. present payment of so much money on them. There was probably little doubt that the lands would not sell .for. nearly as much as-the $19,000 outstanding.

It.is argued by-counsel for Mrs. -Baldwin,;.relying, on the rule that the pledgee'.of negotiable promissory notes has no right upon the pledgor’s- default, to sell the notes to pay the debt, but must await théir maturity and collect them in due course, that the intention of the parties could not have been t.o enter into an executed agreement passing the title to the notes, for the reason, that in- such case Mrs. •Baldwin would be bound to await-the maturity-of the-notes and collect them as best she could, and would have gained-by!the agreement 'nothing in point of time in closing up the timber land'transaction.

The answer to this is-that .the Reynolds' note,-due; January-1, 1900; would become due six months before the. tíme of the last payment undef the contract, and the Reynolds note due January 1,-1901,- would become due only six months after that time, and she could,.-no doubt, upon default of'either or both of the deferred pajunents, enforce the pledge of the Reynolds notes by foreclosing the -lien ; securing them. •

It is claimed,'also, that the. legal title to the notes did not pass because they 'were not indorsed, -and thereforé, if the parties had intended to pass the -legal title, the notes would have been indorsed. There -is no merit in the claim. The notes, are lost,- and it is not known what indorsements'were on them. The first two-notes taken up by Reynolds, "found "by Marsh, bear the indorsement • of W: H. Baldwin without recourse. When Reynolds took them upj 'there was no occasion for the payee to-indorse them. There is evidence suggesting that at one'time W. H. Baldwin pledged Ml of the notes to some bank or left them there as collateral security. It is highly pirobable that at that-time he indorsed them .all.. -It. may be that at the time the contract of sale June .22, Í899, was -made J. F. Baldwin indorsed the notes as attorney for .Mrs. Baldwin, executrix. No one can now say they were not .indorsed.. Be that as it may, and-assuming that they .were not indorsed,-yet • an equitable title-would nevertheless pass, ■which the Lumber Company could enforce in-a court of equity by setting forth the facts and praying that the lien which -it in equity had.might.be foreclosed subject to Mrs. Baldwin’s pledge. Inasmuch .as the notes remained in J. F. Baldwin’s possession, it is probable that it nev,er occurred to any one concerned in the transaction to make a present indorsement for the purpose of passing the legal title.

But Mrs; Baldwin says that'in any event the agreement of June 22, 1899, .was not -made with the Standard Lumber Company, but -with Reynolds, and she makes this the basis of a contention that the transaction was a, mere compromise-with Reynolds for the pa)'ment by hirp of a less sum than the debt, and, the terms of the compromise not having been complied with, his original debt to her is restored to its full amount. There is no merit in the claim.

When the receipt of January 5th was given the Lumber Company, and Mrs. Baldwin’s ownership in the third $3,000 note was transferred to that company, she knew that it had then bought, to that extent, her rights against Reynolds. She knew that on June 22d the' cash payment of $3,130 on the day her offer was made, and accepted, was made by the check of the Lumber Company.

It is claimed by Mrs. Baldwin that, in the statements made to her by J. F. Baldwin and Hafner of moneys collected for her, her attention was not specifically directed to the fact that any of the moneys, actually paid by the Lumber Company were in fact paid by it. This claim has no force for the' reason, among others, that in J. F. Baldwin’s account beginning September, 1898, and ending January 13, 1899, there is an item: “Jan. 5, collected T. J. Reynolds’ note due Jan. 19 (1899?) $3,000.00.” And on the same day: “Collected all interest to Jan. 1, 1899, $570.00.” These entries on their face would indicate that Reynolds-had paid that note and interest; but that payment was in fact made by the Lumber Company under the contract of January 5, 1899.' -Mrs. Baldwin knew it and relinquished to that company her rights' under the note. The payments afterwards of $693, February 19, 1900, by check of the Standard Lumber Company, the check of the Lumber Company July 24, 1900, for $1,085.45, the check of the Lumber Company of March 22, 1901, the check of the Lumber Company of March 30, 1903, $1,164 were not, it is true, specifically shown in the statements as having been paid by any other than Reynolds or on his account, yet the check of the Lumber Company by F. A. Marsh, vice president, May 13, 1903, to the order of Hafner, attorney, for $600 was sent to Mrs. Baldwin, she indorsed it, got the money herself, and knew that the Lumber Company had paid it. With actual knowledge that the Lumber Company had bought one of the Reynolds notes for $3,000 and was holding it against him with his knowledge, with knowledge that the $3,130 cash payment on the contract of June 22d was made by check of the Lumber Company, with knowledge that long after the date of the last payment to be made on the contract the Lumber Company itself paid at least $600 and having in the meantime received several payments from somebody, it will not do for her now to say that she was nqt aware the Lumber Company had any interest in the contract of June 22d, or to claim, as she does, that all the moneys she received were from or for Reynolds or his estate in part payment of his original notes. The payments made to Hafner- by the Lumber Company and transmitted to her were known by him to have been paid by it. He 'also knew of Reynolds’ insolvency and of his death. Whatever may have been the limits of Hafner’s authority, he was confessedly Mrs. Baldwin’s agent to collect money, and the knowledge acquired by him during the discharge of such duties and pertinent to their proper discharge must be imputed to her. Mechem on Agency, § 718 et seq.

It is immaterial-what Reynolds’ motives were in accepting the offer of sale himself. He had not the means to carry out the contract himself in any event. What Mrs. Baldwin wanted was to get money, and it was immaterial to her whether Reynolds paid the cash on the da3r her offer was made, or the Lumber Company paid it. That Reynolds might transfer his rights under the contract was expressly provided for by its terms.

It is not disputed that acceptance óf a contract may be by conduct. The facts afford strong circumstantial evidence that on June 22d Reynolds named the Lumber Company as the beneficiary under the contract, but, in the absence of direct proof upon the point, it is held on all the facts that the Standard Lumber Company’s assumption by the agreement was ratified by Mrs. Baldwin. Indeed, Mrs. Baldwin ought Lot now be permitted to deny acceptance by the Lumber Company. The cash payment and all subsequent payments were in fact made by the Lumber Company. All payments made after Reynolds’ death in. October, 1902, must have been paid by the Lumber Company, and Mrs. Baldwin is chargeable with Hafner’s knowledge and of 'the source from which the several payments came, and she personally received the $600 check from the Lumber Company.

Four payments were made extending over a period of nearly three years after the date the last payment was to be made under the contract. At no time while receiving these payments did Mrs. Baldwin inquire on what or whose account they were received. The Lumber Company certainly believed it was the acceptor of the offer to sell and made its payments during all those years with that understanding. It must be held that Mrs. Baldwin is estopped to deny that the payments were made by the Lumber Company as the actual acceptor of her offer to sell.

[2] The next subject to be disposed, of is Mrs. Baldwin’s claim of want of authority in Hafner to make the contract with Marsh of May, 1903, by which the claim of Mrs. Baldwin and the Lumber Company together amounting to $19,000 was to be enforced and the lien on the land foreclosed,in Mrs. Baldwin’s name for joint account,'the amount due Mrs. Baldwin under the agreement of June 22d to be first paid and the balance to be paid to the Lumber Company. Both Marsh and Hafner acted upon the agreement of June 22d as still in force. If their assumption in this respect was correct, the agreement worked no injustice to Mrs. Baldwin.^ She was to get all the money she was entitled to, and, in addition, was to have the troublesome mineral rights claimed by several persons holding under Rodbourn or his assignees disposed of. These claims were recorded in Rowan county, and were of such a character as to be a cloud upon her title, both to the minerals and the land itself. The purpose was to shut them out and divide the proceeds of the land in such a way that both parties would participate in substance as provided by the agreement of June 22d. The suit has, in fact, resulted in eliminating all those claims against the mineral rights.

It may be admitted that the acceptance by Mrs. Baldwin of payment on account of the Lumber Company’s contract would not have estopped her from enforcing the lien securing the Reynolds notes pledged with her, although it is probable she would have been required to give reasonable notice to the Lumber Company of her intention to enforce her security; hut, assuming her right on the day in May, 1903, the Hafner-Marsh agreement was made, to have her lien enforced, inquiry will now be made into the extent of Hafner’s authority and into the propriety of her now claiming that Hafner had' no authority from her to make the agreement with Marsh (May, 1903) further extending the time of the payment of the balance of the purchase money under the contract of June 22d, and providing for the enforcement of the lien in the joint interest of the parties by bringing this suit (August 26, 1903).

Hafner’s authority was no more restricted than J. F. Baldwin’s. J. P. Baldwin made the receipt of January 5, 1899, and the contract of June 22, 1899, in Mrs. Baldwin’s name. Of the latter she had express knowledge and ratified it, and from the fact that the third Reynolds note for $3,000 was eliminated in the contract of June 22d as if paid she must have known of the contract made for her by him January 5, 1899, and acquiesced in it or ratified it. These, and other circumstances, show that Baldwin’s authority was so broad that it included the execution of important contracts for her embracing large reductions in the Reynolds’ debt; and, while she claims that Hafner had no authority to do anything but collect money for her, yet there is nothing to show that the scope of his authority was any less than the broad powers Baldwin had. On the contrary, she trusted Ilafner as she had Baldwin, to do “as he thought best,” and the record shows that it was the custom for Hafner to make contracts in his own name with other debtors of Mrs. Baldwin. His statements show that he accounted to her for the moneys received from them, and there is nothing to indicate any objection on her part to his acting in that way for her. When Hafner was in charge, much of the lumber had been taken from the land, and future distant value lay to a -large extent in the promise shown by the second growth of trees. At all times, certainly during J. F. Baldwin’s and Hafner’s administrations, the payment of the notes must have been involved in some doubt, and the management of the matter for Mrs. Baldwin’s best interests was always a problem of a kind most properly intrusted to a,lawyer familiar with the transactions and who would be called upon frequently for services not strictly having to do with the collection of money, but of broad management of such a nature as to bring the best results for his client. Of such a character were the duties of Baldwin and Hafner.

Hafner indorsed some of the payments upon the contract which he held, as paid on the contract and transmitted the moneys to Mrs. Baldwin during a period of nearly three years after the time for the last payment under the contract was fixed. She made no inquiry during all that time, and Hafner had every reason to think he could make an agreement for her which would bring about the payment of the balance due her, as well as the elimination of the claims to the mineral rights, and her dealings with him, as they had been with J. F. Baldwin, were of such a nature as to lead him to think that he ccráld so act in her behalf. That he had the power, under the circumstances, to agree as he did with Marsh, can scarcely with reason be denied.

It is not necessary to decide whether he could agree to give to the Lumber Company a half interest in the reserved mineral rights or not. That question is not now before the court.

But, if Hafner did not in fact have actual power to make the agreement, yet in another aspect of the case justice requires the holding that Mrs. Baldwin cannot now be permitted to deny Hafner’s authority to deal, with Marsh as he did. The Lumber Company had paid prior to Marsh’s first visit to Hafner in the spring of 1903 the cash payment of $3,130, June 22, 1899, and $1,085.45 July 24, 1900, indorsed on the original contract held by the Lumber Company as received for it to apply, when paid, upon the contract. This indorsement was made “Isabella C. Baldwin by Edward C. Hafner.” The payment of $693 March 22, 1901, was indorsed the same way. It paid, also, $1,164 March 30, 1903, and the $600 check to Hafner indorsed to- Mrs. Baldwin and indorsed by her when she received the money. In the absence of any notice from her, Marsh was entitled to believe that Mrs. Baldwin not only knew that the Lumber Company was in fact paying these moneys, but by the receipts of the money so indorsed by Hafner during nearly three years after the time fixed for the last payment in the contract that she did not consider time of payment as of the essence of the contract. Her conduct and silence led the Lumber Company and Marsh to believe Hafner had authority to act for her as he had assumed to act, and had authority to foreclose the lien which by virtue of the contract of June 22d was held jointly for the purpose of enforcing the payment of the Reynolds notes. It cannot be supposed that the Lumber Company would have continued to pay large sums of money except with the understanding and belief that the payments were made on the contract.

If Mrs. Baldwin had offered to pay back the sums of money she has received after the date the last payment was to have been made, there might possibly be some shadow of propriety in her claim that the contract was not binding on her, but she has not repaid nor offered to repay these sums, and thereby restore the Lumber Company pro tanto to its former position. Even then the Lumber Company would be the owner of the third note for $3,000, though possibly subordinate in right of payment to the other notes.

She knew also that Hafner in 1903, had filed a petition in her name to foreclose the lien securing the Reynolds notes, and made no objection to it or inquiry concerning it. It was through this petition that this suit was instituted.

In her petition she alleges the amount of the debt to her to be $19,000 and interest, and prayed for a foreclosure of the lien to pay the same. She has known at least since some time in 1906, when Mr. Stephens .took charge of her affairs, of the Lumber Company’s claim, and has never amended or attempted to amend her petition setting forth the interest of the company, even to the extent of the amount she. admits to be due it or is willing it should be paid. It was on her motion, April 24, 1906, that the case was referred to a special master to ascertain the amount due her. No notice was given to the Standard Lumber Company of the fact. Nothing was done under the reference until June, 1908, when she gave her deposition, and, while the Lumber Company was not represented in the proceedings before him, yet the special master himself in his report, December 24, 1908, found from her testimony and the documentary evidence that there was another theory applicable to the contract of June 22d, other than her claim that it was not binding, and on that basis made separate findings of the amount due her; and it was 'not until after the findings of the master had shown that the allegation in her petition of sole ownership of the $19,000 and the lien securing the same was not true, was the Standard Lumber Company notified that the interest it supposed by agreement it had in the litigation needed attention. It then of its own motion, without having been made a party to the case, filed its intervening petition, March 31, 1909, setting up its claim, and that the suit was brought in the first instance in her and its joint interest.

It is not intended here to attack Mrs. Baldwin’s good faith, but to consider only the legal effect of her conduct as viewed by a court of equity. The litigation as a result of the agreement will bring about a sale of the property; will bring her as much as she is entitled to, and has eliminated the claimants to the mineral rights, and from May, 1903, until Marsh was notified of the special master’s findings, at some time between the master’s report, December 24, 1908,’ and the filing of the Lumber Company’s intervening petition, March 31, 1909, Marsh had no reason to suppose that the agreement with Hafncr was objected to by Mrs. Baldwin on any ground. Justice, as administered by courts of equity, requires the holding that, if Hafner did not have actual authority to'make the agreement of May, he had apparent authority, which is quite as effective (Mcchem on Agency, §§ 84, 86, 279, 282, et seq.; Clark & Skyles, 502), and that Mrs. Baldwin is estopped, both by the circumstances prior to its execution and the conduct and results of the litigation since the suit was brought, to deny Hafner’s authority to make the agreement and the right of the Lumb.er Company to receive the fruits of it.

The decree of the Circuit Court is affirmed, and the cause will be remanded, with directions to the Circuit Court to carry its decree into effect.