FLORIDA. LAND & IMP. CO. fl. MERRILL.
77
2. The examination of the record shows that the receiver advertised and sold the property in lots according to the inventory which he had filed in court, and according to the act of transfer of the city of New Orleans to the receiver. In addition to this, it appears that the receiver was authorized by the court to employ, and did employ, a surveyor, who made a large plan, which was exhibited at the sale. The purchasers were thus fully charged with notice with regard to the public streets which intersected and subdivided some of the tracts of land sold; and, as said above, the purchasers, with full notice, seem to be satisfied. The contention that by the sale of the property under the advertisement the court either ordered or approved the sale of the public streets is not tenable. 3. As stated above, the sale of the property was made in the same lot or blocks as it was acquired by the city of New Orleans, the trustee of the drainage fund, and as transferred by the city to the receiver. The record shows that to have it surveyed and subdivided in smaller lots would be very expensive, and without substantial pecuniary result. 4. This isa general assignment that the court erred, the particular grounds being covered by the first three assignments. The opposition of the city of New Orleans to the confirmation of the sales made by the receiver is not accompanied with any averment that the property has been sold at an inferior price, or that a resale would furnish an advanced price, while the weight of the evidence is to the effect that the property brought fair prices, considering its character and location, and that a readvertisement and sale would cost more than any possible increase of price that could be obtained. We conclude that there is no error in the decree appealed from prejudicial to the appellant, and the same is affirmed.
FLORIDA LAND
&;
IMP.
Co.
fl. MERRILL
et
aZ.
lO£reuit Court q[ Appeals, Fifth Circuit. June 2*.1892.) No. 48.
1.
BALE-RESCISSION-FRAUDULENT REPRESENTATIONS.
A large tract 'of land was sold at an agreed price, a certain portion to be paid In cash and balance to be secured by mortgage. Subsequently the seller was induced, by false representations in regard to the solvency of a bank, to accept stock in it as part payment of the balance of the purchase price. The purchaser, who was president: of the bank, organized a joint-stock company, and conveyed the land to it, taking mortgage in payment, which were delivered to the bank in consideration of prior indebtedness to it. The bank and the intermediate parties knew of the fraudulent transaction. The bank soen after was declared insolvent, and a receiver appointed. Held that, since the bank was the real vendor of the stock, the seller was entitled to a complete rescission of the fraudulent sale.
i.
BAME-SALE OF HANK STOCK-RIGHTS OF CREDITORS.
When bank stock is fmudulently sold, and the proceeds are turned over to the bank, and a receiver is subsequently appointed, no creditor of the bank can be said to have any suoh interest in the proceeds as would prevent restitution and a rescission of the sale; and lIuch appointment of a receiver does not in itself show that there' are creditors of the bank who had prior equitieS.
J'EDEBAL BEPORTER,
vol. 52.
rescInding the saie, 80 as to restore to the proceeds of tb4!HltOck fraudulently Bold, doell not neoollsarily invol" }a decision that the purnO,tllableto an ass6s11ment on th6Stock, if necessary to pay debtl\. .
Appefl,l from the Circuit Court of the United States the Northern District of Florida. In Bill by the Florida Land & Improvement Compan.v against ,1\ B. Merrill, as receiver 0,£ the First National Bank of Palatka, \V.I+ Winegar, and the Florida Land & LumberCompany, for the re.0£ a fraudulent sale of bank stock. Bill dismissed on demurrer. ComplaHmnt appeals. Reversed. H. Bisbee, for appellant. . J. N.:Stfipling, for appellees. '. .' .Before :PARDEE and MCCORMICK, CIrcuit Judges, and LOCKE, District , d,
PARDEE, Circuit Judge.. 'fbis is an appeal from a decree dismissing the complainant's bill. in the bill and exhibits thereto, and by demurre.r, bdeflystated, are as follows: Appdlant of about acres of land in the county of Volusia, state of ,Florida, and at or about December 29, 1890, W. J. Winegar, one of the appellees, purchased !laid lands, paying at the time. of purchase all the price. except to secure which said Winegar was, according to the contract, to execute to appellant his promissory J)otl;lllecured by mortgage on: said 'lands. Shortly after the contract of ,to appellant to pay part of r;aid1?alance of purchase money in the stock of the, First National Bank of Palatka, Florida, of which said bank said Winegar was at that time and has ever since been president. Appellant, not being acquainted with the condition of said bank, requested Winegar as president to make a of its condition. The officers of the appellant company, the Florida Land & Improvement Cqmpany, resided in the city of Philadelphia, and had no means of knowing the condition of said bank eXCept from the statements made by said Winegar. In, reply Winegar wrote a letter, (Exhibit B of the amended bill of complaint,) sllying the paid-up capital of the bank was $150,000, with a present surplus of $23,600, and· deposits to the amount of $250,000; and further saying that the dividends Hu:ringthe yeoI' 7 per cent., and that it was expected that the next dividend would be at the rate of 5 per cent. for the half year, ioorder to bringuptpe to 8 per cent. for ,last year, and that the present value ofthe 'stoekwas,alJout from $115 to $120. , Theslt wete and Winegar:'kqew ,at the time of making them that they were false,' and said bank:was at that time' utterly and hopethe Iltatement of. tl;le said '}ess!y',;irisoh'ent. Winegar, president of said bank,. accepted 100 shares of stock at 'pershllre,' and took a mortgage of the money, $9,90iL56,'on 'tbe lands mentioned. ' 'This mortgage has been paid and 'satisfied. At or about the time of accepting the stock of said ap-
FLORIJ)A LAND &: IMP.
79
pellant. execlited and delivered to said Winegar a good and sufficient deed ofconveyance of the lands mentioned. Winegar. soon after these lands were conveyed to him, organized the defendant company, the Florida Land & Lumber Company, of which company he became and still is the president. To this company Winegar conveyed the lands mentioned, and the Florida. Land & Lumber Company then issued a series of bonds, to the amount of about $108,400, par value, secured by a mortgage or deed of trust on said lands, said mortgage or deed of trust being given to the Manhattan Trust Company as trustee for the bondholders. The Manhattan Trust Company, though made defendant, has never been served with process, or otherwise brought into court. These bonds were given to in payment for the lands, and also a large quantity of capital stock of said defendant company was given to him. All, or nearly all, of the bonds and stock mentioned were delivered to the First National Bank of Palatka, in consideration only of past indebtedness of the said Winegar to the said bank, and no new consideration was paid by said bank for said bondsjand the bill chargesEl9.id bank with full notice of the fraud. practiced on appellant by said Winegar in imposing said worthless stock upon it; and also charges the receiver and all creditors and stockholders of the bank with full notice of said fraud. The Fl()ridaLand & Lumber Company, to whom said Winegar cOliveyed these lands, is also charged with full notice of said fraud through its president, Winegar. .The bill further charges that the said shares of stock of the First National Bank of Palatka sold to Winegar by !!oppellant were, at the time they were sold and delivered, the propertyofthe bankj and that the said Winegar delivered the same for the benefit of the bank, and in order to obtain an appearance of assets for' the said bank which, as before said, was totally insolvent. The First National Bank of Palatka was decllired insolvent on July 17, ·1891, about six months after the making of the statementeontained in Exhibit B, and the defendant T. B. Merrill was appointedreeeiver of the same on the ' day of August,1891. The receiver has in his pOSllession the bonds and stock above referred to, and claims ·to be entitled to payment of said bonds before appellant is satisfied for the balance of the purchase price of said lands. The bill shows that the officers 'of the appellant company were not informed and knew nothing of the condition of the said bank until within a very short time before the filing of its bill of complaint. Appellant claims, on the state of facts set forth in the bill, to. be entitled in equity to a vendor's lien on the lands conveyed to Winegar, superior to the claims of holders of bonds issued by the Florida Land & Lumber Company, for the balance of said purchase money due for said lands, and, as incidental to this relief, it asks that Merrill, as receiver of the bank, be restrained frolh selling; or in any wise disposing 01\ said bonds. Appellant further asks that said receiver beenjoilled from levying or collecting any assessment oli said bank stock, as against appellant. Alternative relief is also prayed in the bill, if for any reason the particular relief as mentioned should not <
80
FEDERAL REPORTER, vol.
be proper. Defendants T. B.Merrill, as receiver. etc., the First National Bank of Palatka, and W. J. Winegar demurred to the bill on the that there wa,s no equity in it, and, on hearing, this dethe bill was entered. murrer was sustained, and a 011 the facts as stated,alladmitted by the demurrer, the appellant .has!l>eEmdefrauded ofa property right, and is entitled to relief, unless, wean time, the rights. of innocent third parties have.intervened. The Jearnedjudge presiding in. the circuit court gave 00 reasons in writing for his decision, and weare left to infer what they may have been. Itiuuggested in the briefs th;lLt the court held that, by the declaration of the bank and t4e appointment of a receiver, the rights .ofJl}l:109!:lut t.hlird parties, to wit l of the bank, have intervened; receiver. the creditors of th{:) bank as. well as t4e although it did that there. were any creditors of had given credit to Won the faith of the bonds issued on the; in Yet the court would infer from the fact that jt1w had been that there were creditors of the bank whowe;r.e.prior inequity to tl)6 appellant. As it is admitted that the bank sold and delivered toJhe appellant, was the prPpeity of the bank, ane;! the proceeds of the fraudulent sale Were atW,lce turned overto;thebanlt, and are now held by the receiver as of the we 40 not understand how it can be that anycredit9rofthe bank can have such an interest as would prevent res.receiver remesenting creditors has. only the rights of propert;y by the It does not appear,nor it is to be inferred, that..the receiver or.thecreditors of the bank have parted with anything of value upon the faith of the bonds fraudulently held by the bank, 'andtoallo,w the receivef,on:the theory that there may be some bona fide creditor of to retain the proceeds of the sale, wOtM bet9 give the qreditorsClfthe bank the frqitB of a gross fraud, which" py taking and holding, WQt;lld make them particeps criminis. 1 Story, Eq..Jur.L93aj Kerr, Fraud &, M. 233. court "that the capital stock of Counsel fOJ;apFellees contends, iQ. an incorporateq: is a fQ,ndset apart for the payment of its debts;" v. Upton, 91 U. S. 56. And he. says further: ,"Under tbis principle the interests of the insolvent bank and its stockholdElrs are secondary and contingent. I:hey have no interest until the last o,bligation of the bank to its creditors shall have been fully discharged. After the payment of all debts they are entitled to the residuum. 'rhe creditors are iD'terested parties. and unde'r theclrcu'mstances the bill should allege that they had notice of the alleged fraud, and tilat the credit was not extended upon. the faith of the bonds in question. nor upon the faith of appellant being stdQkholder. Fl:8udulent misrepresentations Of the officers of a bank made time of constitute DO deff'!nse after its 10sol· of a rece1ver." :Citing Benj. Bales, par. 709; Kerr, Fraud .& M. pp. 48, 49; Ogilvi4 v. Co., 22 How. 380; Upton v. Tribilcock,91 U. S. 45; Farrar v. Walker, 3 Dill. q06, and note; Upton v. Englehart, ld., 496; Duffield v. Barnum, (Micl1.),:31 N. W. Rep. 3W; Moore v. Jones, 3 Woods, 53.
UNITED STATES V. CULVER.
81
In our opmlon these arguments and authorities do not apply in this case. This is not a case of subscription to the capital stock of an incorporated company, nor a case of transfer of stock by an ordinary stockholder, but it is a case where the bank as an actor made a fraudulent sale of its own stock, and now by its receiver holds the proceeds thus acquired. In other words, the receiver of the bank holds property that does not belong to the bank, to which neither he as receiver nor the of the bank are entitled in equity and good conscience. Further than this, on counsel's theory of the bill that the stock sold was Winegar's, and not the bank's, it is to be noticed that the scope of the bin covers two distinct subjects for equitable relief,-the one being to restore the appellant to the eCluitable right of which it has been divested, the other to protection from assessments and charges as a stockholder in the First National Bank of Palatka; appellant may be entitled to the one and not to the other. To withhold from the demands of the creditors of:the bank property frauduiently acquired by the bank does not necessarily require a denial of an assessment on the stock ofthe bank, if necessary tQpay debts. And in this view of the case we are clearly of the opinion thatappellant is entitled to a rescission of the sale of stock in question"as against Winegar, the Florida Land & Improvement Company,and the First National Bank of Palatka; and also as against the the vendor's receiver of the bank, at least so far as to restore to lien upon the lands described in the bill for the amount of the purchase price still unpaid, leaving the receiver to collect assessments on stock from such stockholders as under the law may be liable. Considering, however, as we do, that the bill chargps and the demurrer admits that the bank was the real vendor of the stock, we think that in equity the appellant is entitled to have a complete rescission of the fraudulent transaction 'complained of. The decree sustaining the demurrer and dismissing the bill should be reversed; and it is so ordered.
UNITED STATES V. CULVER
et al.
(Oircuit Oonrt, W. D. Arkansas. June 29,1892.)
PuBLIO LANDS-CANOELLATION OF PATENT-MINERAL LANDS.
Section 2318 of the Revised Statutes of the United StateB provides "that in all cases lands valuable for minerals shall be reserved from sale, except as otherwise expressly directed by law." In such case, the title of the lands in defendants could not be held valid because acquired against the law.
2.
SAME-FRAUD.
If the lands are valuable for mineral, and they were purchased by defendants as agricultural lands, with the knowledge that they were mineral lands, the patent issued by the government wO\lld convey no title, because issued unadvisedly, or by mistake of an officer of the government while acting ministerially. In such a case, the parties purchasing the land are guilty of a fraud. and upon that ground a court of equity will pronounce the patent void. .
v.52F.no.1-6