Zellerbach v. Allenberg , 99 Cal. 57 ( 1893 )

The Court.

The facts involved in this case, so far as they need be stated, are as follows: —

On December 31, 1875, the plaintiff was indebted to the defendant, William Goldstein, in the sum of $50,000, for borrowed money, and on that day executed to him his promissory note for the sum named, payable one day after date, with interest at the rate of one per cent per month.

On March 20, 1876, plaintiff was indebted to the defendant, Charles Allenberg, in the sum of $9,000, and on that day he executed an agreement in writing by which he promised to pay, on or before January 20, 1877, the said sum of $50,000 to Goldstein, and the said sum of $9,000 to Allenberg, with Interest on the same at the rate of one per cent per month, payable quarterly. At the time of executing this agreement plaintiff also executed to Allenberg a deed of conveyance of certain real property, situate in the county of Sierra in this state, to secure payment of the said respective sums of money; and thereafter, in March, 1877, to further secure payment of the said respective sums of money, plaintiff pledged with Allenberg thirty thousand shares of the capital stock of the Altoona Quicksilver Mining Company; and on March 7, 1879, for further security, plaintiff pledged with Allenberg one thousand shares of the capital stock of the Eureka Lake and Yuba Canal Company. Immediately after receiving the said shares of stock in pledge, Allenberg surrendered the certificate therefor to the corporations and took new certificates in his own name. He was then the attorney in fact of Goldstein, who resided in Germany, and all the transactions, so far as the latter was interested in them, were managed by him as such attorney.

In March, 1877, plaintiff being then indebted to the defendant, E. L. Goldstein, upon two promissory notes for $10,000 each, given for borrowed money, one dated February 26, 1876, and the other June 29, 1876, and both bearing interest at the rate of one and one-quarter per cent per month, pledged with said E. L. Goldstein eleven thousand shares of the capital stock of the Altoona Quicksilver Mining Company to secure payment of the said notes.

On March 22, 1879, the defendants herein severally made personal demand upon the plaintiff that he pay to them the respective amounts for which he was indebted to them, and at the same time served him with written notice that unless he did make such payments they would, on the fifth day of May, 1879, at twelve o’clock noon, at the auction rooms of Middleton and Son, in San Francisco, sell the said shares of stock that had been pledged ■ to them as aforesaid for the said respective amounts of indebtedness.

On the said fifth day of May, 1879, plaintiff commenced this action in the late district court of the fourth judicial district, in and for the city and county of San Francisco, to obtain an injunction restraining the defendants, and each of them, from selling, or offering for sale, the said shares of stock, or any of them. In his complaint the plaintiff admitted his indebtedness to the defendants, except that he claimed the indebtedness to Allenberg to be $7,000, instead of $9,000, The injunction was granted as prayed for, and it remained in force until it was dissolved by the judgment now appealed from.

On February 25, 1880, the defendant, E. L. Goldstein, commenced an action in the superior court in and for the county of San Francisco, against the plaintiff herein, to recover the amount due upon his said promissory notes. Summons was duly served on the defendant in the action, and he failing ■to answer judgment by default for the sum of $34,645 was entered against him, and in favor of the plaintiff therein, on -November 1, 1881.

On January 19, 1881, the defendants, Allenberg and William Goldstein, commenced an action in the superior court in and for the county of Sierra, against the plaintiff herein, to •recover judgment against him for the amount of his said indebtedness to them, and to obtain a decree foreclosing as a mort.gage the deed of the real property in that county, and directing the sale of the stocks which had been given and pledged to Allenberg, as before stated, to secure payment of such indebtedness. The defendant in the action, Zellerbach, filed his answer to the complaint on August 16, 1881, denying that he was at all indebted to Allenberg, and also denying that he had ever pledged with Allenberg, for the' benefit of .the plaintiffs in the action, or for any purpose, thirty thousand shares, or any number of shares of the capital stock of the Altoona Quicksilver Mining Company.

Thereafter the case was tried and on May 17, 1882, findings were filed and judgment entered therein. The court found that Zellerbach was indebted to Allenberg in the sum of $15,651, for principal and interest, and to William Goldstein in the sum of $75,823.15, for principal and interest; that the real property in Sierra County had been conveyed, and the said thirty thousand shares and one thousand of.stock had been pledged to secure payment of the indebtedness; and that the injunction issued in this action, restraining the sale of the said stock, was still in full force and effect. The judgment was in favor of the plaintiffs for the amounts found due them, and it directed the sale of the real property and the application of the proceeds thereof to the payment of the indebtedness, and further provided that if the proceeds should be insufficient to pay the indebtedness, “application might be made to said court for an order or writ directing the sale of said shares of stock and the application of the proceeds of said sale to the payment of such deficiency, and that until the further order of said court no process should issue therein for the sale of such stock, or any part thereof.” From this judgment an appeal was taken to this court, and in February, 1884, the same was affirmed. (Allenberg v. Zellerbach, 65 Cal. 26.)

Under the judgment the real property was sold and the proceeds applied as directed. The whole indebtedness was not paid by the proceeds, but no application was subsequently made to the court for the sale of the said stocks.

The Altoona Quicksilver Mining Company was incorporated in July, 1875, with fifty thousand shares of capital stock. There were five directors of the company, and from 1878 up to 1885 defendants, E. L. Goldstein and Allenberg, were two of such directors. The last election of directors was held September 25, 1880, when the three defendants herein and two others were chosen. From that time on E. L. Goldstein was president, and Allenberg secretary and treasurer of the company. The Altoona mine was worked profitably up to 1880, but in that year it became necessary, at a large expense, to sink to lower levels, and the work therein was practically suspended, and so continued up to the trial of this action. At the time of suspending work there was quicksilver on hand, the product of the mine, which was subsequently sold by the president, E. L. Goldstein, for sums aggregating, after paying all expenses of working and indebtedness of the company, the sum of $22,730.63. This money was received by the president and held by him up to the time of the trial, no dividend of any part of it having been declared, or credit therefor given to Zellerbaeh.

M the times when the said stocks were transferred to Allen-berg in pledge, as before stated, he was the confidential clerk and book-keeper of Zellerbach; He was also then and thereafter the secretary of the Altoona Company, and received for his services as such $50 per month. On October 1, 1878, a resolution was passed by the directors of the company allowing him $2,400 for various services rendered to the company, other than those required of him as its secretary; and this sum was paid to him out of the funds of the company.

On April 23, 1885, after having three times appended his complaint in this action, plaintiff by leave of the court filed a new “consolidated and supplemental complaint,” on which the trial was had. He alleged therein, among other things, that since the commencement of this action he had discovered that the moneys pretended to have been loaned to him by the defendants were his own moneys, which had been embezzled by Allen-berg, his confidential clerk, and advanced to him as money belonging to the Goldsteins, with their knowledge and connivance; that plaintiff was not in fact indebted to the defendants, or either of them, in any sum of money whatever; that plaintiff was the owner of all the shares of stock claimed by defendants to have been given to them in pledge, and that they had no interest in said stocks; that the judgments of November 1,1881, and May 17, 1882, “are held by said defendants, E. L. Goldstein and William Goldstein, respectively, in trust for their co-defendant Allenberg; and the said Goldsteins have not, nor has either of them, any beneficial interest whatever therein, and that all their acts and doings in and about the receipt and procurement of said notes, and in the suing thereon and obtaining said judgments, were and are solely for the benefit of said Allenberg ”; that at the time of the execution of said notes and the recovery of judgments thereon, plaintiff believed that the consideration of the notes had been advanced to him by the payees named, and that the suits thereon were prosecuted and the judgments recovered for their benefit alone; and plaintiff did not discover that they were privy to and participating in the frauds of the said Allenberg, or were conspiring or conniving with him in covering up and concealing his frauds upon plaintiff, until within the three years last past; “that the defendants, conspiring and confederating together .to ruin plaintiff in his business, and to leave him utterly helpless and destitute financially, wrongfully took possession of his valuable properties, and particularly the shares of stock hereinbefore mentioned .... and have wrongfully voted this plaintiff’s said Altoona stock to elect and re-elect and keep themselves in office as directors of said quicksilver company ; that said defendants have, as such directors, wrongfully voted and paid to said defendant Allenberg large and exorbitant sums of money, the property of said company, and which should have been applied to the payment of dividends on the stock of said company, . ; . . and particularly that said defendants, as directors of said company, voted to said defendant Allenberg, on the first day of October, 1878, the sum of §2,400, and paid the same to him under the assumed and false pretense that it was for services rendered the company other than those of secretary”; that the defendants have wilfully managed the Altoona mine so as to depreciate its value and cause its stock to have no market value, that they might be enabled to purchase the said shares of stock, at such threatened sale, at a merely nominal price, and that unless restrained they will sell and dispose of the same, and the same will be utterly lost to the plaintiff. And the prayer was that the defendants be enjoined from selling or otherwise disposing of the said stock, or any part thereof, and be required to deliver the same to the plaintiff free and clear from all encumbrances; that the said judgments be adjudged satisfied and paid, or that the amount found due to plaintiff be set off against them; and that an accounting of all the said transactions between plaintiff and defendants be had, and for general relief;

The defendants answered the complaint, denying specifically all the allegations of fraud and conspiracy; alleged the loan of the various sums of money by themselves to the plaintiff, the pledge of the stock to secure the payment of the said sums, and the non-payment thereof; and set up and pleaded as estoppels the judgments recovered by them against the plaintiff. The answer asked for no affirmative relief.

The case was thereafter tried, and the findings upon all the issues were in favor of the defendants. A decree was accordingly entered adjudging that the plaintiff was indebted to each of the defendants, upon the judgments referred to in the complaint and answer, in certain specified sums of money, and that the defendants respectively had a lien for the payment of such indebtedness on the said described shares of stock which were pledged to them; and also dissolving the injunction issued at the commencement of the action, and directing that the said, shares of stock be sold by the sheriff at public auction in the manner and upon the notice provided by law for the sale of personal property under execution, and that the net proceeds of the sales be paid to the defendants, so far as necessary to pay the indebtedness due them.

From this judgment and an order denying his motion for a new trial plaintiff appeals.

1. The appellant contends that the judgment was not authorized : 1. Because it granted to the defendants severally affirmative relief, when no such relief was prayed for by them. 2. Because the two former judgments, upon which the relief was granted, were barred by the statute of limitations; and 3. Because the lien upon the pledged stock had become extinguished by lapse of time.

There was no error in the action of the court complained of. The case was one in equity, and the court was authorized to grant any relief consistent with the case made and embraced within the issues, although not specifically prayed for. (Code Civ. Proc., sec. 580; Gimmy v. Gimmy, 22 Cal. 633; Scott v. Sierra Lumber Co., 67 Cal. 75; Hurlbutt v. Spaulding Saw Co., 93 Cal. 55; Pomeroy on Remedies, secs. 83, 580.) The plaintiff himself set up the former judgments in his complaint and brought the whole matter before the court for its determination as to their validity. ISTo question as to the judgments being barred by the statute of limitations was raised by the pleading, nor, so far as appears, at the trial. The court found: —

“ At the trial -of this action, evidence was introduced by the respective parties for the purpose of determining the amounts unpaid upon the several judgments hereinbefore mentioned, and the amounts of the indebtedness of the plaintiff thereon, and an investigation and accounting were had and taken of and concerning the transactions and dealings between the plaintiff and the said defendants, and of the moneys received by the defendants and each of them, for or on account of the plaintiff, and from such evidence the plaintiff has been shown to be indebted to the defendants respectively in the respective amounts herein-before stated.”

This finding is not assailed, and the evidence referred to is not brought up in the transcript.

It thus appears that evidence was introduced by both sides for the purpose of determining the matters referred to in the findings, and that no objection was made by either party to the evidence that was offered, or to the accounting that was had. This being so, the appellant can not raise the objection for the first time in this court that the indebtedness was hatred by the statute.

“Common honesty requires a debtor to pay his just debts if he be able to do so, and the courts when called upon always enforce such payments if they can. The fact that a debt is barred by the statute of limitations in no way releases the debtor from his moral obligation to pay it.” (Booth v. Hoskins, 75 Cal. 276.) And even though the debt is barred, the debtor cannot recover property pledged to secure its payment without first paying the debt. (Grant v. Burr, 54 Cal. 298; Spect v. Spect, 88 Cal. 437; 22 Am. St. Rep. 314; Jones’ Pledges, sec. 582; 18 Am. & Eng. Encycl. of Law, p. 734.)

It follows that, as the indebtedness was not barred, the lien upon the pledged stocks had not become extinguished, and the court was authorized to order them "to be sold as it did.

The appellant contends that he was entitled to a new trial, because in the accounting between the parties he should have been credited with his share of the $22,730.63 surplus assets of the Altoona Quicksilver Mining Company, and with his share of the $2,400, which as alleged was improperly paid to Allenberg.

This contention is based upon the theory that the defendants, in the exercise of ordinary care as directors of the company, ought to have declared a dividend of the surplus assets, including the $2,400, and to have credited appellant’s share thereof on his indebtedness. And in support of the contention the rule is invoked that “that which ought to have been done is to be regarded as done in favor of him to whom, and against him from whom performance is due.” (Civ. Code, sec. 3529.)

As to the payment of the $2,400, the court found that the defendants as directors had not “ voted to or paid the defendant Allenberg any sum of money to which he was not entitled, or which should have been applied to the payment of dividends on the stock of said company”; and the only specification of the insufficiency of the evidence to justify the findings is that it appears from the evidence that said E, L. Goldstein and Charles Allenberg, as directors of said company, voted the sum of $2,400, against the protest of Mr. Zellerbach, out of funds which should have been applied to the dividends of said corporation, and to the credit of said Zellerbach.

It appears from the statement that it was shown at the trial “ that Allenberg had rendered various services other than those required of him as secretary, and had received the sum of $2,400 therefor,” and that the payment of this sum was authorized by a resolution passed by the board of directors of the company. The only evidence brought up in the record to show that the allowance and payment were improper is that of Mr. Zellerbach, in which he stated “that in 1879 the trustees of the Altoona Quicksilver Mining Company voted Allenberg a compensation of $2,400 for services outside of his secretary’s work, against which he, Zellerbach, protested as strongly as he could.”

It was proper, if Allenberg performed extra services, that he be paid a reasonable and just compensation therefor, and that he did perform such services and received only a reasonable compensation for them must be assumed in view of the action of the board. Of course, he could not, as a member of the board, himself take part in passing the resolution to pay him the money, and it does not appear that he or even E. L. Gold-stein did take any part in passing it. There were five directors, and in the absence of anything to the contrary, it will be presumed that the resolution was authorized and was properly passed.

As to the claim that the defendants ought to have declared a dividend, and should be required to account for the money in this action, as if one had actually been declared, it is enough to say that no such claim was set up in the complaint, or, so far as appears, made at the trial; but however this may be, the rule as to declaring dividends is “ that the apportionments of the net earnings to the payment of cash dividends .... is largely one of policy, entrusted to the discretion of the directors, which when honestly and intelligently exercised, will not be lightly overruled.” (Excelsior W. & M. Co. v. Pierce, 90 Cal. 131.) Here the court found, in effect, that the defendants had honestly and intelligently managed the affairs of the Altoona Company, and had not misappropriated any of its moneys; and the evidence was amply sufficient to justify the findings.

It appeared that when work in the mine was practically suspended in 1880, there was still valuable rock in the mine, but that a considerable expenditure of money was necessary before it could be profitably worked. According to Mr. Lytle’s testimony an outlay of $15,000 was necessary. He said: “It should be worked with a furnace. A good furnace could be put up for $15,000, that would word ten tons a day, with a return of about six hundred pounds of quicksilver per day.” Mr. Allenberg testified “that it would require at least $50,000 to open up the mine at a lower level and equip it for good work.” And the plaintiff, while giving his testimony, was asked if he complained of them for not spending the money in the further development of the mine, and said: “ I didn’t want them to manage anything. I wanted them to give it up. I wanted to work the mine myself. I didn’t want them to do anything but give up the property.”

How, inasmuch as the plaintiff in his complaint denied that he had pledged his stock to the defendants, and was questioning their right to hold the stock in any capacity, and was attacking every act of theirs with reference to the mine, it would seem to have been simple prudence on their part to suspend any further operations, and to hold these assets in their hands until their rights should be determined and the litigation ended. For if, as claimed by plaintiff, the stock had not been pledged to them, they would have had no right to pay themselves any dividends out of the assets. Under these circumstances it must be held that the defendants, as directors of the corporation, exercised their discretion honestly and intelligently in not declaring any dividends, and that they cannot be called upon to account for the money in this action.

3. The appellant further contends that the court erred in admitting in evidence, over his objection, certain letters written by William Goldstein to Allenberg, and also in admitting proof of the contents of certain letters written by Allenberg to Goldstein.

It appears that Allenberg was called by the plaintiff as a witness, and was asked if he had any letters from William Goldstein. He answered that he might have, and was then asked to produce them upon a succeeding day. Upon such succeeding day the witness, still being under examination by the plaintiff, was asked to produce any letters from William Goldstein which he had relating to the matters about which he had been testifying; and thereupon he produced a letter dated May 8, 1874, and was asked to read a portion thereof, which he did. The witness thereupon gave to counsel for plaintiff another letter purporting to have been written by William Goldstein under date of July 31, 1874, and plaintiff’s counsel then stated: “I do not wish that letter at present. You can put in any letters you want to and exhibit them.”

Subsequently, upon cross-examination of the witness, defendants’ counsel offered to read in evidence the letter of July 31st, and plaintiff’s counsel objected that it was incompetent for the reason that it was correspondence between two parties defendant: Defendants’ counsel stated that they did not offer the letters as evidence to bind Mr. Zellerbach, but to disprove the allegations of fraud; and thereupon the letter was admitted and an exception reserved.

Defendants’ counsel were afterwards permitted, over a like objection and exception, to read other letters written by the said Goldstein to Allenberg and dated respectively, November 26, 1874, May 14, 1875, July 30, 1875, November, 1875, January 28, 1876, and February 2, 1877.

The letter of May 8, 1874, which was produced and read at the request of the plaintiff, was an acknowledgment of the receipt of a letter from Allenberg containing a quarterly statement of the amount of money standing to the credit of Gold-stein on April 1st, and saying it was all right. The letters objected to contained acknowledgments of the receipts of subsequent similar statements, and some of them spoke of the writer’s family and financial affairs, and of his investments and losses.

Ifc is urged that some of these letters were written after the notes were given for the money claimed to have been misappropriated, and were not a part of the res gestee, and therefore not admissible; but it appears that all but two of the letters were written before the notes were given, and the last two were written before the Altoona stock was pledged to secure the notes. It also appears that the transaction complained of commenced prior to 1874, when, as alleged, Allenberg began to abstract and embezzle the plaintiff’s money, and it continued until 1879, when he and his co-conspirators advertised and were about to sell the plaintiff’s stock. It was, therefore, according to the plaintiff’s theory a continuing transaction of robbery and fraud from the beginning to the end.

Under these circumstances any communications from one alleged conspirator to the other, made while the conspiracy was in progress, and relating to its subject-matter, were part of the res gestae and admissible. The court did not err, therefore, in admitting in evidence the letters objected to. (Code Civ. Proc;, sec. 1850; 1 Greenleaf on Evidence, sec. 108; Emma Silver Min. Co. v. Park, 14 Blatchf. 412; Beaver v. Taylor, 1 Wall. 642; Lund v. Tyngsborough, 9 Cush. 41; Allens. Duncan, 11 Pick. 308.) Nor did the court err in admitting evidence of the contents of the letters written by Allenberg to Goldstein. It was shown by the witness that the letters had been mailed by him directed to William Goldstein at Bremen, in Germany, and that the witness had not seen them since; that in due course of mail he had received replies thereto, and that he had no copies of the letters.

Under the provisions of section 1963, subdivision 24 of the Code of Civil Procedure, there is a presumption that a letter duly directed and mailed was received in the regular course of the mail; and a letter that is beyond the territory of the state is, within the meaning of the statute, "lost,” so as to allow secondary proof of its contents. (Gordon v. Searing, 8 Cal. 49; Binney v. Russell, 109 Mass. 55; Manning v. Maroney, 87 Ala. 567; 13 Am. St. Rep. 67; Burton v. Driggs, 20 Wall. 134.)

It is admitted by respondent that there is in the judgment a clerical error of $1,000, and that the judgment should be modified so as to correct the mistake.

The cause is remanded, with instructions to modify the judgment by striking out “$21,541.86,” and inserting a lien there of “$20,541.86.” As so modified, the judgment will stand affirmed. Each party will pay his own costs on appeal.

Harrison, J., being disqualified, did not participate in the foregoing decision.