Court Opinion

ID: 8767169
Source: CourtListenerOpinion
Date Created: 2022-11-26 12:30:33.706379+00
Date Added: 2024-06-11T17:01:57.923056
License: Public Domain

ROSS, Circuit Judge
(dissenting). I am unable to agree to the judgment in this case. The appellant sued as a dissatisfied stockholder *15of the California Development Company, and as such only. Manifestly, therefore., he can have no other or greater right to maintain the suit than would that corporation, were it the complainant. Smith v. Ferries & C. H. Ry. Co. (Cal.) 51 Pac. 715, 716; Chetwood v. Cal. National Bank, 113 Cal. 425, 45 Pac. 704 ; Garretson v. Pacific Crude Oil Co., 146 Cal. 184, 79 Pac. 838: 10 Cyc. 1160. Would the California Development Company he entitled io the relief here sought upon a like hill? I think not. In the. bill, these, among other facts, are expressly alleged:
“12. Your orator shows that heretofore and some time in or about the spring and summer of 1901, by reason of the ineompoiency of one C. 1Í. Roekwood, the engineer of said California Development Company, silt was allowed to aoeumuiaie in the intake for said wafer in that portion of the canal of said company adjacent thereto, wherehy it was difficult to divert the needed water from said Colorado river into the canals of said California Development Company; that thereafter and some time in or about the month of September. 1901, said Mexican Company caused a cut to be made in the bank of said Colorado river and in the Republic of Mexico, and at a place where the bed of said river was much higher than said Mexican Company’s canal; that the soil was loose and unstable at said point, and the said river gradually widened a breach In its said bank at said point until it became impossible to control or manage the flow of said liver; that said intake gradually became, and now is, the bed of the entire Colorado river along and upon which the entire' waters of said river flow; that the lands Irrigated by the water so appropriated! and diverted by said California Development Company are all below sea level and much lower than the old bod of the Colorado river, from which said waters are taken ; and that further westward is a vast area or basin lying many feet below sea level, into which said waters were, by said new cut and point of diversion, caused to flow, and now are (lowing, which said basin is known as ‘Saltón Basin.’ Thai: said waters fiave now covered about 400 square miles of said basin and are gradually rising therein.
“13. Your orator further shows that the defendant Southern Pacific Company operates a line of railroad through and across said Saltón Basin, which line at some points is more than hvo hundred feet below sea level; that some time in the month of February or March, 1005, the inflow of water from the Colorado river to said Saltón Basin began to approach and threaten to submerge the railroad tracks of said Southern Pacific Company at different points in said Saltón Basin; that, as your orator is informed and believes, and upon such information and belief alleges, at or about said time said Southern Pacific Company realized that a continuance of said inflow into said Saltón Basin from the said Colorado river would compel it to abandon many miles of its said railroad or remove the same to higher ground, which would involve great expense to it; and that, at or about said time, said Southern Pacific Company conceived the purpose of acquiring control of the defendant California Development Company, upon the pretext of being interested in aiding said company in its colonization and development work, but in reality for the purpose of making large expenditures to protect its right of way and tracks in the name of, and as an indebtedness against, said California Development Company, and of saddling a large amount of indebtedness therefor upon said company, in the form of loans from the said Southern Pacific Company. * * *
“15. That, at the time said Southern Pacific Company conceived the purpose of gaining control of said California Development Company as aforesaid, said California Development Company was in financial straits and its credit was greatly impaired, and its then president, A. H. Ileber, had been obliged to pledge his personal assets to obtain loans for the company; and that, by reason of such financial difficulties, said company was constrained, by its necessitous condition, to accept a loan of $200,000, offered by said Southern Pacific Company some time in or about the month of May, 1905; that, by the terms of said loan, said California Development Company agreed to give to the Southern Pacific Company control of its board of directors and of all its affairs, until *16such time as it should repay said loan with interest, and in addition and at the same time said Southern Pacific Company got control of a majority, to wit, 6,300 shares of its capital stock, by way of pledge; that said agreement was so worded and drawn that it became forthwith hopelessly impossible for said California Development Company ever to extricate itself from the terms thereof, and said Southern Pacific Company then and there became a creditor in possession and having complete dominion and control over the assets of said California Development Company; that all of the foregoing and other provisions of said agreement more fully appear from said agreement,” which agreement, together with the agreement between the development company, the Mexican Company, and the Southern Pacific Company, which is annexed to and made a part of that between the development company and the Southern Pacific Company, are fully set out in the bill — that between the development company and the Southern Pacific Company reciting:
“ ‘That, whereas party of the first part (the development company) is desirous of borrowing from party of the second part (the Southern Pacific Company), on the terms hereinafter set out, the sum of two hundred thousand ($200,000.00) dollars to be used by it in paying off certain of its floating indebtedness, and in completing and perfecting the canal system of first party and of that certain corporation known as the Mexican Company; and whereas, on the terms and conditions hereinafter set out, party of the second part is willing to make such loan; now therefore, in consideration of the premises aforesaid and of the several mutual covenants and promises herein contained, the parties hereto do hereby covenant, promise and agree as follows, to wit: '1. Party of the second part is to loan and advance to party of the first part, and at once pay into its treasury the sum of two hundred thousand ($200,-000.00) dollars; which said loan is to be repaid by first party to second party on or before March 1st, 1911, in installments as follows: Twenty thousand ($20,000.00) dollars on or before March 1st, 1907; thirty thousand ($30,000.00) dollars on or before March 1st, 1908; forty thousand ($40,000.00) dollars on br before March 1st, 1909; fifty thousand ($90,000.00) dollars on or before March 1st, 1910; and sixty thousand ($60,000.00) dollars on or before March 1st, 1911 — all deferred payments to bear interest from date of advancement and payment of the money hereunder to first party, until paid, at the rate of six (6) per cent, per annum, payable semiannually, and which said sum, with the interest thereon, first party agrees to pay to second party in installments as above fixed and set out,’ etc., etc., and the annexed agreement between the development company, the Mexican Company, and the .Southern Pacific Company, reciting: ‘That whereas parties of the first (the development company) and third (the Southern Pacific Company) parts, at the time of the execution hereof as a part of this same transaction, have entered into and executed the foregoing and annexed contract or agreement in writing; and, whereas, under said agreement, party of the third part (the Southern Pacific Company) is to loan and advance to party of the first part (the development company) the sum of- two hundred thousand dollars ($200,000.00) therein mentioned under the terms and conditions and for the purposes mentioned in said foregoing contract; and. whereas, it is the understanding of all the parties hereto that a large part of the money so loaned to party of the first part (the development company) is for the real use and benefit of parts' of the second part (the Mexican Company) in the work of repairing, construing (constructing) and perfecting its canals and canal headings in the Republic of Mexico, the said loan being entirely made to party of the first part (the development company) instead of partly to party of the first part (the development company) and partly to party of the second part (the Mexican Company), for the reason and because of the fact that parts' of the second part (the Mexican Company) is a foreign corporation having all of its properties in a foreign country, beyond the jurisdiction of the courts of the United States, and because of the further fact that the proportions of the said loan to be used by party of the first part (the development company) and by party of the second part (the Mexican Company) cannot in advance be ascertained or determined; and, whereas, at the time of the agreeing to the making of said loan, it was agreed by party of the second part (the Mexican Company) that it should guarantee the said .loan .and the 'repayment thereof; now, therefore, in consideration of *17the premises aforesaid, and in consideration of the entering into and execution of the foregoing contract hereto annexed, the said parties of the first and second parts do hereby covenant, promise, and agree’ as specifically set forth in the agreement.”
The bill further expressly alleges “that $150,000 of said sum of $200,000 so agreed to be advanced was loaned and advanced to said California Development Company by defendant Southern Pacific Company on or about July 22, 1905, and the remainder, to wit, $50,000 was so loaned and advanced on or about September 22, 1905.”
The twentieth paragraph of the bill is as follows:
“Your orator further shows that since securing control of said California Development Company and dominion over its property and assets, as hereinabove stated, defendant Southern Pacific Company has made large ex-pendiiuros of money loaned and advanced to said California Development Company, under said contract set forth in paragraph 15 hereof, for the benefit of itself — the said Southern Pacific Company; that said expenditures have not been made for the benefit of said California Development Company or said Mexican Company a t all, and have not benefited either or both said companies, and your orator is informed and believes, and upon such information and belief charges the fact to be. that upwards of $300,000 has already been expended by said Southern Pacific Company in the above; way, and for its own benefit and without benefit to said California Development Company and said Mexican Company, and saddled upon said California Development Company in the form of a debt to said Southern Pacific Company.”
It thus appears from the express averments of the bill itself that the Southern Pacific Company loaned to the California Development Company, and paid into its treasury, the sum of $200,000 upon the terms and conditions stated in the two agreements above referred to, and while the bill does allege in the paragraph last above quoted that the Southern Pacific Company “has made large expenditures of money loaned and advanced to said California Development Company, under said contract set forth in paragraph 15 hereof, for the benefit of itself, the, said Southern Pacific Company, and that said expenditures have not been made for the benefit of said California Development Company or said Mexican Company at all, and have not benefited either or both said companies,” it does not allege how much of the money so loaned and advanced to the California Development Company the Southern Pacific Company has expended for its own exclusive benefit. There is no averment that all of the money loaned by the Southern Pacific Company to the development company was expended by the former for its own benefit. The general allegation contained in paragraph 20 of the bill “that upwards of $300,000 has already been expended by said Southern Pacific Company in the above way, and for its own benefit and without benefit to said California Development Company and said Mexican Company, and saddled upon said California Development Company in the form of a debt to said Southern Pacific Company,” is far from being an averment that all of the money loaned by the latter company to the California Development Company was expended by the Southern Pacific Company for, its own benefit. It should be remembered that the rule is well established that pleadings must be taken most strongly against the pleader, and that a demurrer admits only the truth of such facts as are well pleaded. Nei*18ther the alleged conclusions nor inferences of the pleader amount to anything.
In my opinion the court below was right in holding the complainant’s suit subject to the maxim that “he who seeks equity must do equity,” and that without the return of at least such of the money loaned by the Southern Pacific Company to the development company, of which the complainant was a stockholder, that was not expended by the Southern Pacific Company for its own exclusive benefit, he could not be entitled to the relief sought.