Court Opinion

ID: 3554034
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:05:41.97258+00
Date Added: 2024-06-11T14:06:44.488103
License: Public Domain

I. I find nothing in the case nor in the arguments which suggests any error in the computation by which the master finds a balance of funds in the hands of Elliot as treasurer of the Ashuelot Railroad, January 1, 1861, of $10,451.50.
The master has indicated the sources from which this sum is derived, and I am unable to see why Elliot, who has retained this sum, always claiming that he had the right to retain it on the ground that it was insufficient to compensate him for moneys due to him from the *Page 439 
corporation, should not be charged with interest upon that balance from the time when his duties as treasurer were substantially ended, January 1, 1861.
I see no reason why any other rule as to interest should be applied than that which ordinarily is applied to an account due, viz., six per cent. simple interest.
II. Elliot has derived no interest or advantage from the amounts which were deposited to his credit as treasurer in the Ashuelot and Cheshire banks, viz., the sums of $221.03 and $207.50. These sums he should account for without interest.
III. The findings and legal conclusions of the master as to the transactions concerning the Chamberlain bond should be affirmed as the judgment of the court.
IV. So also with regard to the Samuel Towns stock.
V. I see no occasion to revise the findings of the master with regard to the amount with which Elliot is chargeable as trustee, viz., $2,025, and interest at six per cent. on funds of the Ashuelot Co. used by Elliot.
VI. With regard to Elliot's transactions in relation to the Ashuelot and the Cheshire bonds: I have read and considered with great care and anxiety the arguments of counsel upon either side, and I have endeavored to examine the authorities and the books, to discover the proper application of the law to this case, which though anomalous in some respects, seems to fall nevertheless within the limits of fundamental rules.
Mr. Elliot fell into the mistakes and errors which involved other officers of the two roads, with regard to the effect of an attempted foreclosure of the mortgage, and which led to negotiations upon a false basis, erroneously but innocently assumed to be correct and well founded. And I take the liberty, irrelevant though it may be, but prompted and urged by considerations of long personal acquaintance and esteem, to remark that my confidence in Mr. Elliot's personal integrity is not impaired by the developments of this case.
But I am quite unable after all to dissent from the judgment and opinion of the court, as rendered at the August term, 1874, — a judgment and opinion which, if unreversed and if well grounded, seems to preclude very much of the subsequent discussion to which we have respectfully and very attentively listened.
It was then considered and declared as follows: "upon the facts stated in the printed case with respect to Elliot's dealings in the bonds of the Ashuelot R. R. Co., after he took possession of the road as treasurer, no reason is now seen why he should not account to the corporation for the profits of those transactions.
"We think it impossible to sustain the view of his counsel, that his relation to the corporation after he took possession under the mortgage was not that of a trustee. Undoubtedly he represented the bondholders in respect of their rights and interests by virtue of the mortgage, but we think it equally clear that he represented the corporation in respect of their rights and interests in the mortgaged property. All his *Page 440 
title, and all his right to possess and manage the property, was a trust. As to the mortgage debt, the real mortgagees, that is, the bondholders, were his cestuis que trust; as to the property itself, and the equity of redemption, the mortgagors, i. e., the corporation, were his cestuis que trust. The bonds formed the whole basis of the trust. With their extinguishment, his legal title and his consequent legal rights to the possession of the road would be gone. His general duty to the corporation lay in the direction of their extinguishment. It is not impossible but that his private interest might, in some contingency, be in the opposite direction. At all events, from what now appears, it is plain enough, we think, that he could not speculate in those bonds for his own private gain, without violating very fundamental principles established for the government of those sustaining this fiduciary relation to others, and approved by the courts of equity from the earliest times."
Whether there be any good reasons for the distinctions attempted to be drawn by counsel as to the kind of trust here existing, and the kind of trustee which Mr. Elliot may be said to have been; whether the trust and the trustee may be denominated special, general, technical, constructive, or equitable, — it must be conceded that his relations to all the parties (whether as debtor, or creditor, or mortgagee, or trustee, in connection, also, with other official relations to the two roads) were of a fiduciary character, and were very close, intimate, and confidential.
And they were relations to which the fundamental principles of equity apply with such stringency as absolutely to forbid any such conduct or dealings with the property subjected to his control as should place his individual interests in a state of antagonism with those of either the bondholders or the makers of the bonds.
That as trustee and mortgagee, in possession or out of possession, he might lawfully be at the same time an owner and a purchaser of bonds, need not be denied; and that, to some extent, these several positions of the same individual may have been inevitably antagonistic and his interests conflicting; — and in such a complication of circumstances his situation was one of such extreme delicacy as, it would seem, should have prompted the design and effort on his part to escape from the complication.
But, standing upon this delicate ground, and consenting to these environments, he was bound to submit to the situation, and so far ignore his individual interests, and so far resist all temptation of personal advantage, as, while striving to subserve the best interests of all, whose agent, in any sense, he was, to permit himself individually to receive no more than strictly and purely incidental advantages. The moment he permitted himself to make a profit to the disadvantage of either party, so far as that profit was not a purely incidental result, unachieved by any interference with affairs outside the strict line of his no doubt embarrassing duty to the parties whose middle man, in a certain sense, he may be said to have been, that moment he became responsible to account to the party prejudiced by his transaction for all the *Page 441 
profits thereof. There was no point of time and no status of position in which, as to the mortgage creditors or the mortgage debtors, he could be permitted to make the interests of either party subservient to those of himself as an individual, without violating the fundamental principles which are established for the protection of those who place faith and confidence where confidence and faith are invited and accepted. If a man cannot serve two matters, much less can the agent of two masters reverse his position so that the servant shall constitute himself the master of either.
When Elliot took possession of the road for the bondholders, he was charged with the duty to enforce their claims and protect their rights strictly and faithfully. Their rights were, to have their bonds paid, or the mortgage foreclosed for their benefit. His duty as mortgagee in possession was, so to manage the property as to make it most available for the payment of the bonds. And the more prudently it was managed, the more were the bondholders benefited by the preservation and enhancement of the value of their securities; while, at the same time, the stockholders were in like degree benefited by the preservation and enhancement of the value of the means for the extinguishment of their debts. The interests of the debtors and the creditors were therefore, to a great extent, alike, if to some extent they were seemingly antagonistic. In so far as prudent management of the road tended to enhance the value of the bonds by sustaining the credit and value of the security, so far the market value of the bonds was increased, and holders could hold or sell at advantage. In so far as the road might be impaired by bad management, so far the market value of the bonds would be diminished, and holders would hold or sell at a disadvantage and loss. His duty to the bondholders, then, required him, by all fair and upright means — fair and upright towards the debtors as well as the creditors to maintain the price and value of the bonds.
On the other hand, in so far as the price and value of the bonds in the market were diminished, in whatever was, so far the corporation was benefited by the diminution, because the sum was thereby diminished for which the corporation might procure the extinguishment of their debt.
But it was not in the line of his duty, but contrary to his duty to both parties, to speculate for his own private advantage, and so disturb the current of an even and equable stream as to give to the bonds a fictitious or an unnatural value, — by which I mean, a value not determined by the ordinary influences affecting the market, independent of his own private and individual speculations.
Just so far as for his personal advantage he enhanced the price of the bonds, so far he deprived the stockholders of a sum of money, to the extent of which, but for his interference for purposes of personal gain their debt would have been diminished; for their debt or obligation was a sum not arbitrarily fixed by the denomination of their bonds, but by the fluctuating price of such securities in the commercial world. Now, the result of Mr. Elliot's transactions and its effect upon *Page 442 
these interests is declared to be, a profit to himself to the detriment of others whose interests he was bound always to regard as dominant. I do not understand it to be insisted by his counsel that Elliot did not avail himself of his peculiar position and advantages for knowing much better than the public knew the true condition of the corporation, which enabled him to obtain their bonds at less than their true value; but their consolidation in his own hands under these circumstances is regarded as defensible.
I cannot so regard it. That which would be all right in an outsider, and a fair result and reward of shrewdness and financial ability, is all wrong in the case of one who, holding the confidential position of a trustee, seeks his personal advantage to the disadvantage of those whose interests are placed within his control and under his protection. I therefore concur with my brethren in the opinion that Mr. Elliot must account to the Ashuelot Railroad for the profits of 31 1/2 per cent. on $46,000, with interest, regulated and allowed as indicated by my brother LADD.
VII. With regard to the Winchester land: If now, as at the time of the hearing before the master, the Ashuelot Co. disclaim any interest in the deed, it must be regarded as the property of Elliot. There was nothing in the official relation of Elliot to the road which authorized him to purchase the land in their behalf, and, although the purchase was doubtless made in good faith, he cannot compel the road to ratify it.
The Cheshire road must account to the Ashuelot road for the value of this property, for the reasons and in the manner suggested by the master.
VIII. It appears from the case that the Ashuelot road was leased to the Cheshire by an agreement taking effect January 1, 1861, the validity of which is not disputed. This was a lease for nine months, with liberty to the lessees, upon its termination, to revive it and keep it in force till January 1, 1865, at $12,000 per annum.
On the first of July, 1861, Elliot, as trustee, contracted with the lessees for continuing the lease from October, 1861, till January, 1865, on the terms that the lessees should have the first $12,000 of the gross earnings, the lessors the next $6,000, and the excess to be divided equally between them.
Whether Elliot, as trustee for the bondholders, had power to bind the Ashuelot road by this contract or not, the agreement was (with the exception only of the provision for dividing the surplus earnings above $18,000 between the two roads) simply the practical election of the Chesire road to keep the lease of January, 1861, in force and effect till January, 1865. This they had a right to do, independent of any new contract with the lessors; and this agreement for the extension the made in July, 1861, to take effect in October, 1861, — an agreement made prior to the time when Elliot became a director in the Cheshire road, — was made, as the case shows, in good faith, and was acted upon in good faith by all parties. *Page 443 
It was an agreement advantageous to the lessors, since it provided for an additional rent to the extent of one half the surplus of the gross earnings above the sum of $18,000.
But in 1862 Elliot became a director, being also then and ever since a large stockholder, in the Cheshire road; and subsequently, October 1, 1864, still being such director and stockholder, as well as trustee for the lessors, he contracted with the lessees for the further extension of the contract of January, 1861, as modified in October, 1861, until such time as it should be terminated by a notice from either party to the other, with a further modification to the effect "that taxes and contingent charges" should be paid from the gross earnings after the distribution of $18,000, as before provided, before there should be a division of the remainder of the surplus. This contract continued in operation till January, 1868, when a new agreement was made, under which the parties have acted ever since the purport and effect of which were to allow the Cheshire Railroad to reimburse themselves for the expenses of operating the Ashuelot road from the earnings of the latter, requiring them to pay over all the surplus to the trustee.
Now it is quite clear to my mind that Elliot was incapacitated to make a legal contract or lease with the Cheshire road, of which he was a director. The legal principle is elementary, that a man cannot lawfully Contract with himself, or with himself and others, whether, in the position of either contracting party, he act as a principal or as an agent.
But it has been definitely settled in this case that none of the contracting parties acted collusively or fraudulently, but that the trustee, as well as the Cheshire Railroad, acted in good faith in making all these contracts. In good faith they have always acted under them, supposing them to be valid and of full effect; and, although the accounts between the trustee and the Cheshire Railroad have not been settled and adjusted in accordance with these several contracts, yet payments have been made from time to time, if not in express recognition of the continuing validity of the several contracts, still, without any effort by any party to abrogate, or repudiate, or ignore their vital existence, and without any expression of dissatisfaction with the practical operation of the roads under supposed valid subsisting agreements.
The presiding judge, at the trial of this cause, has found that all these contracts are valid, unless it shall be otherwise determined by this court, by reason of the incapacity of the trustee to contract with the Cheshire Railroad. And the master has stated the accounts between the two roads upon the basis of the continuing validity of all these contracts.
To this the plaintiff now object. They claim that the Cheshire Railroad are bound by all these contracts, legally and equitably, but that they, the plaintiffs, are entitled to elect as to which, if any, shall operate upon them; — and thus they contend in argument,
"1. That the Cheshire Railroad Co. is bound by the contracts, as found by Judge HIBBARD and cannot object to the validity of any of *Page 444 
them. Those made before Elliot was chosen one of its directors, it does not object to, but admits.
"That those made after he became, by its own interposition and election and by his own consent, one of its directors, and in which he was pecuniarily interested, the Chesire Railroad Co. cannot object to, but it is legally and equitably bound by them at the election of the cestuis que trust.
"2. That no new contract, or any modification of any existing contract at the time he was chosen director of the Chesire Railroad Co., made by him as trustee of the Ashuelot Railroad Co. with the Cheshire Railroad Co., in which he was not only an active director but had a pecuniary interest, can bind the cestuis que trust — the Ashuelot Railroad Co.- unless it approves of them, and elects to take the benefit of them. Now, the result of this would be to leave the lease of 1861, as modified by the trustee, July 1, 1861, in full force, even to the present day, at the option of the cestuis que trust; or, at his option, to leave the same lease, as modified October 1, 1864, as found by Judge HIBBARD, in full force to the present time, leaving it open to him to object to the legal power of the parties to cancel or modify that contract, or claim Any rights under that of January 1, 1868. And inasmuch as the contract of 1864 is substantially the same as that of 1861, modified in the interests of the Cheshire Railroad Co., only in a manner that upon its face would not seem unjust, — and in as much as the master's report for four years is based upon that contract, and could not be corrected only by a delay which would be more detrimental to the plaintiffs than the amount they would gain, — they therefore will accept and adopt the contract of 1864, and object to that of 1868 as of no binding force upon them."
But the recognition and enforcement of this doctrine by a court of equity would, I conceive, operate as a great surprise upon all parties who have for the last ten years been concerned in the practical management of these roads. To learn at this late day that equity and good conscience require that the Cheshire Railroad Co. should pay, and the Ashuelot road receive, twenty to thirty thousand dollars more than anybody ever claimed, by force of any supposed existing arrangement or understanding, would be an experience which the parties in interest, I apprehend, have not heretofore ventured to contemplate.
The plaintiffs' learned counsel cannot really mean it — I am sure he does not; for, having distinctly enough announced such a proposition, I observe the speedy recoil of his conscience and sense of honor in a subsequent statement of his client's position, thus: "The plaintiffs in this case, believing their position fully justified it, therefore asked the court to charge the Cheshire Railroad Co., from 1868 up to the present time, according to the lease of 1864. This would modify to some extent and increase considerably the amount which the master has reported due under the contracts of 1868, found in force by Judge HIBBARD, subject to the exception of the cestuis que trust. By merely claiming this as their legal right in this case, the plaintiffs do not *Page 445 
waive, or intend to waive, their rights as found by Judge HIBBARD and the master; but if the court should come to the conclusion that their claims, as above made, are not well founded in law and equity, they ask that their rights, as stated by Judge HIBBARD and the master, under instructions of the court, be enforced."
The plaintiffs' counsel express the opinion that by holding the contract of 1864 to be a continuing contract at the option of the cestuis que trust, substantial justice will probably be done. But we cannot encounter the investigation of those probabilities by undertaking to substitute for the contract under which all parties in interest supposed they were acting, and with the tens and the practical operation of which they were apparently contented, another and entirely different contract, being the same which had become obsolete and been repudiated.
The plaintiffs came into court seeking equity, and they ought gracefully to recognize and conform to the maxim in such cases made and provided. How, then, stands the matter, and what equitable solution of the difficulty is practicable? I think the careful consideration of the case as presented to the presiding judge upon the trial of this cause, and the minute and critical examination of affairs accomplished by the master, have produced a result which we ought not to disturb, — that result being a settlement upon the basis of the contract of 1868, — not because that contract is of force and validity, but because in past and existing circumstances its recognition has afforded a just and reasonable and satisfactory basis of negotiation and practical experience.
Elliot had the power to make the contract of 1861. The Cheshire road, by the express terms of that contract, had power to extend its operation to 1865. Elliot had no power to make the contract to 1865, nor that of January, 1868; and these, whatever may have been supposed, have never had any validity in fact. But it by no means follows, that, because the contract of 1865 and that of 1868 never had a beginning, therefore the contract of 1861 never had an end. The contract of 1861 expired by the force of its own limitation at the end of the year 1864, since which time there has been no express, succeeding contract. There was no valid subsisting contract between the parties after the extinction of that of 1861, but when that contract expired nobody ever supposed they were any longer acting under it.
I am not aware of any legal principle which raises the conclusive presumption of a continuance and perpetuation of an existing state of things after the lapse of time specially provided and limited for the existence of such a state of things; but such presumption, if it arises at all, must be rebutted by evidence of an attempt (unsuccessful though it may be in legal effect) to inaugurate, and the practical recognition of, an entirely different status, policy, and plan of conduct.
IX. I agree entirely with my brother LADD, that the lease of land in the Y must be declared void; but I also fully concur with my brother SMITH in the opinion that in equity it should be decreed that the land be surrendered to the Ashuelot road only upon a proper allowance to *Page 446 
the Cheshire for betterments, the amount to be determined by the master or the circuit court.
And I am of the opinion that a receiver should be appointed, unless the plaintiffs give security.