Dunfee v. Terwilliger

GILBERT, Circuit Judge

(after stating the facts as above). The ordinary expectancy of a renewal of a lease is regarded in equity as a valuable interest, and, if one who stands in a fiduciary relation to a person entitled to such beneficial interest secures a renewal to himself, a court of equity will treat him as holding the new lease in trust for the persons entitled to the beneficial interest in the original lease. This rule is well settled, and is accepted in both English and American courts. Holt v. Holt, 1 Chan. Cas. 190; Phyfe v. Wardell, 5 Paige (N. T.) 268, 28 Am. Dec. 430.

As applied to the present case, the rule amounts to this: The appellant herein may not secretly or clandestinely take a lease on the mining property to himself, at the expense of those who became associated with him under his agreement with the appelleethat is to say, he cannot secretly or inequitably obtain for himself a lease to which all of his associates were equally entitled. In Chittenden v. Witbeck, 50 Mich. 401, 15 N. W. 526. Judge Cooley expressed the principle here applicable: “But the pivotal fact on which all such cases turn is that there has been underhand and secret dealing by one of the partners in fraud of the other, whereby he has obtained a special advantage to himself during the continuance of the partnership, which fair dealing required that he should have taken for the benefit of the firm; and equity takes notice of the fraud and declares him trustee for the firm.”

As applied to the facts in that case the court said it was not understood or expected “that one shall put his property and responsibility at stake upon the results of the business, and that the others shall share in the profits while escaping responsibility for the losses. But this is what in effect is demanded of this complainant. It is insisted that he shall take a lease, in which he will be sole lessee and solely responsible for all the contingencies of depreciation and loss, and that at the same time he shall account to another, who incurs no risk and no responsibility, for some share in the anticipated but altogether contingent profits.”

In Marks v. Merrill Paper Mfg. Co. (C. C.) 188 F. 850, where a corporation was insolvent and doing a losing business, and its stockholders were unwilling to furnish additional capital, and a new corporation of certain of its stockholders purchased the company’s equity in mortgaged property, pursuant to a plan whereby all of the stockholders of the old company might become stockholders of the new, it was held that the majority stockholders had not obtained any unfair advantage over the minority.

In Tygart v. Wilson, 39 App. Div. 58, 56 N. Y. S. 828, the court said: “It would be unreasonable to hold that, after the dissolution of a copartnership, or the fixing of a time when it is to be dissolved, neither member of such copartnership should be at liberty to lease the premises theretofore occupied by them for his own benefit, but could only take it for the joint benefit of those who were no longer to continue in the business. The sum and substance of the principle is that a partner shall not secretly or clandestinely take advantage of his position to better himself at the expense of his associates; that he shall not, as some cases express it, 'go behind the back’ of his copartner to obtain that, solely for himself, to which all of his associates are equally entitled.”

In Green v. Hall (Tex. Com. App.) 228 S. W. 183, it was held that the general manager of a company, which had a lease which was about to be forfeited for nonperformance of its terms, might individually take a new lease, free from any interest of the others interested with him in the former lease, so long as the lease was forfeited, not for any fault of his, but owing to the company’s inability to finance the enterprise.

As we view the law applicable to the undisputed facts in the present ease, we are unable to assent to the conclusion reached by the court below. We find no evidence of fraud or concealment upon the part of the appellant. The evidence shows that for a period of two years he endeavored faithfully to operate'the mining property successfully and carry out his contract with Terwilliger. Differences arose concerning the management. “On September 30, 1918,” Terwilliger testified, “I wrote him, and told him that my advice to him would be to close down the property Immediately, because we were not realizing a dollar on it, and I thought the property could be financed much easier with lots of ore in sight than it would be to work the property out.”

Terwilliger advocated the sale of treasury stock to raise funds for further operations. The appellant insisted upon compliance with the terms of the contract, which required each party thereto to contribute from his respective personal stock for future financing. Operations thereupon ceased at Terwilliger’s request. On March 26, 1920, two months before-the expiration of the lease, the appellant wrote to Terwilliger: “If I can secure a 2½-year lease and option, * * * which I believe I can, do you think you could take the old company and get the money by selling stock to work it ? * * * Wire or write me what you are willing to try and do, or which you think could be done; the inducements are better now than ever before.” Thirty-six days later Terwilliger replied: “When will you be in Los Angeles to confer with me regarding'this matter of the Orleans property? I would not attempt to do any business through, the mail, as I consider it would be time wasted.” Upon the back of the appellant’s letter he wrote the following: “Ansd. Mch 30/20 and stated would not raise any money on the old line, and would not make any agreement about this matter by letter or wiring. Told him to come to Los Angeles and we would go into the matter in detail and come to some understanding for financing.”

There was no further communication between the two. Terwilliger remained thereafter at Los Angeles, more than 400 miles distant from the mining property, and the appellant heard nothing further from any of the appellees, and but for the fact that he subsequently made discovery of paying ore it is reasonable to assume that he would never have heard from them. Terwilliger testified that he never expressed a desire to have the lease extended; that he never made inquiry as to what the appellant did after the correspondence ceased, and never knew that he had obtained a lease of the property until about July 15,1921, when he heard of the sale thereof ; that he knew that the original lease would expire by its terms on May 31,1920, and that he had no reason to think tbit any work was going on at the mine thereafter. He testified that he thought he would eventually hear somttMng from the appellant, because “I was 'fifty-fifty in the property. Q. Your idea was, if he ever in the future got an interest in the Orleans, then you would spring your fifty-fifty interest on him? A. Yes, sir.”

When on June 1, 1920, the lease of the mining property expired, .the expectancy of its renewal had no discernible value, for the lessees had no right or equity to demand or expect a renewal in the face of the fact that the mining property had lain idle for 19 months, the lessor’s machinery had been stolen, the slopes had fallen in, and no disposition had been shown to resume mining operations. Nor after the expiration of the term, of the lease was the appellant under any obligation to devote his time to the service of the appellees, or to carrying out his contract with Terwilliger. During the preceding 19 months he had without objection from the appellees given his attention exclusively to his private interests elsewhere. We cannot see where at any point he failed in his duty to the appellees, or,did them an injury, or took from them a property right.

The decree is'reversed, and the cause is remanded, with instructions to dismiss the bilL