Highland v. Davis

The bill of complaint, filed in this cause on the twentieth day of March, 1935, contains the following allegation:

"Complainant further avers that if the pretended sale of said 568 shares to said The Exponent Company is permitted to stand, your complainant will suffer great loss and irreparable injury in that he is thereby deprived of the said 568 shares at a fictitious and wholly inadequate sale price, and in addition to the immediate loss by reason of the great difference between the actual value on February 17, 1935, of said 568 shares and the pretended sale price thereof, * * *."

The answer of J. Hornor Davis, filed May 13, 1935, before proof was taken, which began July 12, 1935, contains the following averment:

"Your defendant denies that if the sale of said 568 shares of Class A stock to said The Exponent Company is permitted to stand the plaintiff Cecil B. Highland will suffer great loss and irreparable injury in that he is thereby deprived of the said stock at a fictitious and wholly inadequate sale price, or that in addition to the immediate loss by reason of the alleged great difference between the actual value of said 568 shares on February 17, 1935, and the sale price thereof, the remaining 1088 shares of said Class A stock owned by said plaintiff are or will be greatly depreciated in value, * * *."

* * * *

"Your defendant further says that neither your defendant, nor said defendant The Exponent Company, have had, or have now, any desire or intention of profiting at the expense of said Virgil L. Highland estate; that the price paid for said stock, as your defendant verily believes, is in fact substantially more than its actual value, and all that was or is sought to be accomplished by the purchase of said stock is a reasonable means of protection against the ruinous activities on the part of said Cecil B. Highland personally in the business of said Clarksburg Publishing Company. * * *."

The separate answer filed by the Exponent Company on the same day contains substantially the same denials and the same affirmative allegations; so that there can be no doubt that the adequacy of the sale price, dependent upon the market value, if any, or the actual value otherwise, under the pleadings was one of the material issues of fact, and, furthermore, that that issue related entirely to the time of sale under the collateral note.

Before the final submission of the cause on July 9, 1936, there was a great deal of proof taken and a great deal of the twelve-hundred-page record is made up of testimony relating to the question of value of the stock pledged as collateral immediately preceding and on the day of sale.

The trial chancellor held in favor of the plaintiff, and in doing so practically disregarded the sale price of the collateral stock and held, substantially, that the motive that influenced and brought about the sale was the controlling element, and that J. Hornor Davis was to be regarded as a pledgee and that he had, as such, violated a fiduciary duty that he owed the pledgor or complainant.

It has been necessary to review the record upon the former appeal of this cause and although, presumptively, what may be called a quasi-fiduciary relationship arises between the original pledgor and the pledgee, and extends to the maker and holder of collateral notes, I think that it carries that assumption entirely too far to say that a fiduciary duty rested upon J. Hornor Davis as the pledgee in favor of the pledgor under the circumstances shown by this record. The pledgor is charged with knowledge that his interest and the pledgee's are at times dissimilar. Highland and Davis were standing at arm's length, and that fact cannot be questioned. Of course, that would not justify a deceitful or fraudulent course of conduct on the part of the pledgee, and it may be simply mincing words to undertake to distinguish between affirmative fraudulent conduct that no individual may pursue toward another and avoid responsibility for resultant injury, and the non-performance of a fiduciary duty, but there was no reason for Highland to suppose that his collateral would remain in friendly hands or that the bank would not dispose of it. Bad faith resulting in a plainly inadequate price he could expect to be protected from, but to charge the pledgee with duties beyond that would be to impose additional duties instead of giving effect to the express terms of the collateral note, the purpose of which is to minimize the payee's obligation toward the payor.

The language of this Court in the former opinion bearing upon the inadequacy of the purchase price is as follows:

"On the question of the inadequacy of the price, the evidence is in conflict; yet in solving the question of good or bad faith, the trial chancellor did so without considering whether or not the price was grossly inadequate as a badge of bad faith, as shown by the court's opinion, incorporated as part of the decree, and the adjudication of court on the motion to strike. (See case of Robertson v. Vandergrift et al., 119 W. Va. 219, 193 S.E. 62, as to effect of opinion of trial court). On this point alone, the case should be remanded. This court will not, in the first instance, consider questions not yet acted upon by the trial court."

I have examined the cases cited at this point in the former opinion and am under the impression that in refraining from entering a final decree here in favor of the defendant this Court treated the plaintiff with more liberality than that to which he was entitled. The case of Rice v. Rice, 88 W. Va. 54,106 S.E. 237, was a divorce proceeding in which the trial chancellor, because of what he considered was insufficient proof, had dismissed the plaintiff's bill on final submission. The weight of the evidence having been considered below, this Court entered a decree in favor of the plaintiff and remanded the cause for the sole purpose of having the question of alimony passed upon — not the merits that had already been considered. In the case of Nuzum v. Nuzum, 77 W. Va. 202, 87 S.E. 463, the trial chancellor, on final submission, had dismissed the bill for the reason that in his opinion there was an adequate remedy at law. The decree was reversed and the cause remanded because the merits had not been considered by the trial chancellor. The other cited cases bear upon issues not considered by the trial court. In this case the merits of the cause, together with full proof, had been fully considered on the first submission, and the error consisted in giving too much weight to the supposed purpose of the pledgee, and too little weight to the adequacy of the purchase price of the pledged stock. This Court simply remanded with implied directions to correctly rule on the evidence which had been fully developed, though erroneously scrutinized. On the chancery side, I think this was not necessary.

The additional proof that the plaintiff tendered upon the first remand, I think, the trial chancellor very properly declined to consider because it was either cumulative only or it concerned nothing more than the value of the stock subsequent to the day of sale, which has very little, if any, bearing on the adequacy of the sale price. Its subsequent value might logically be attributed to the fact that the control of the Publishing Company had changed hands. Furthermore, if the value of the stock subsequent to the day of sale is relevant, at what time would the evidence of value become too remote to be considered?

There was a written offer of settlement made by J. Hornor Davis which was filed as an exhibit with his answer and, in so far as the value of the collateral stock was concerned, entirely does away with the notion of a fraudulent purpose on his part. It involves a cancellation of the sale, a year's renewal of the collateral note with no curtailment required and no payment of interest beyond the date of renewal, and imposes upon the pledgor only that Highland shall, by written stipulation, renounce his right and qualification to become a voting trustee, director, officer or manager of the Clarksburg Publishing Company and all control of the editorial policy of the Clarksburg Telegram. This offer was not even considered, and, of course, complainant could not be expected to relinquish his right as one of the testamentary trustees of the Virgil Highland estate. Nevertheless, I believe it is relevant as disclosing Davis' purpose and intention.

Summing up, it is my belief that to remand this cause for the taking of further proof on the question of an inadequate price involves nothing more than a question which has already been correctly decided by the trial chancellor. Code, 58-5-25;Huntington, etc., Company v. Topping, 115 W. Va. 364,176 S.E. 424; Shikes v. Gabelnick, 273 Mass. 201, 173 N.E. 495, 87 A.L.R. 1339; Arrington v. Sizemore, 241 Ky. 171,43 S.W.2d 699.