Court Opinion

ID: 8792804
Source: CourtListenerOpinion
Date Created: 2022-11-26 13:57:43.870491+00
Date Added: 2024-06-11T17:03:27.291047
License: Public Domain

WOODS, Circuit Jüdge
(dissenting). The importance of the issues involved in this appeal seem to justify a statement of my reasons for dissent.
On March 12, 1909, Mrs. Ollie H. Browning, James S. Browning, her husband, and James S. Browning, Jr., an infant son, by Mrs. Ollie H. Browning, his guardian, made a contract with Thomas T. Boswell by which they agreed to sell to Boswell coal known as the “Pocahontas” or “No. 3” seam in lands particularly described in the contract, together with machinery, live stock, and other personal property, and to lease the’ lands for the purpose of mining the coal for the term of 50 years. Boswell agreed to pay as a consideration $200,000, $50,-000 cash, and the remainder in three installments of $50,000 each, on April 1, 1910, 1911, and 1912, and also to pay a. royalty of 15 cents for every long ton of coal mined. The lease contained, among many other provisions, this stipulation:
“It is expressly understood and agreed between parties hereto that this is a lease in gross and not by the acreage.”
Boswell took possession of the property on April 1, 1909, but immediately thereafter, on April 14, 1909, in pursuance of his expressed pürpose when the contract was executed, he assigned all of his rights to Big Vein Pocahontas Coal Company, a corporation organized for* the purpose of mining the coal. By proceedings instituted in the circuit court for Tazewell county, Va., to which Boswell and the coal company were parties, the court’s sanction of the contract in behalf of the infant was obtained, and Mrs. Browning was authorized to receive his share of the payments to be made. On May 1, 1909, the coal company executed to the Colonial Trust Company a mortgage to secure bonds to the amount of $400,000, of which $275,000 have been issued. Soon after taking possession the coal company began to make extensive improvements in the mining plant, and in a little more than a year spent in this work more than $200,000. The company was not successful, and on October 28, 1910, the United States Circuit Court for the Western District of Virginia appointed E. P. Keech, Jr., and H. H. Heiner receivers under a bill filed by creditors, asking for the appoint- _ ment of receivers and a sale of the property for the satisfaction of the liens. Mrs. Browning was not made a party defendant to the proceeding, but on her own behalf, and as guardian of the minor, James S. Browning, Jr., intervened and filed her petition in the cause, setting up her rights under the contract, including her rjght to a lien for the unpaid portion of the $200,000 purchase money and for the royalties due and to become due. In the answers of Boswell and other creditors, and of the coal company itself, made to this petition, nothing was alleged against the right of the petitioner to the enforcement of the terms of the lease. An order was made providing, among other things, that *839Mrs. Browning was entitled to a lien for the unpaid portion of the purchase money, and the royalty, and referring the matter to Mr. H. Claude Pobst, as special master, to ascertain and report ail the indebtedness of the company with the priorities and securities of creditors. Thereafter the master made a report finding a balance due on the $200,000 purchase money of $139,746.59 as of July 24, 1911. Mrs. Browning filed an exception on a matter of interest; and, while the report remained unconfirmed, ihe coal company, jointly with two of its creditors, and Thomas T. Boswell and Colonial Trust Company each filed a pleading, called a cross-bill, and supplemental answer to the petition of Mrs. Browning, alleging that the lease contract had been obtained by false and fraudulent representations made to Boswell by Mrs. Browning and her husband, James S. Browning, as to the area of the leased land underlaid by No. 3 coal. On this allegation the court was asked to annul the contract or grant a fair abatement in the price contracted for, and to require Mrs. Browning and her husband to pay the coal company the money expended for a new plant and equipment in excess of the amount which would have been expended for a smaller plant, had the true area of the coal seam been known. Amendments were allowed, alleging fraud in the additional particulars that Mrs. Browning falsely represented to Boswell that she had been offered $1,000,000 for the property, and that without the knowledge of Boswell she employed and paid John M. Ambrose to aid in making the sale and lease as her agent, when she knew that he had been employed and was relied on by Boswell to aid him in the transaction.
After the consideration of volumes of testimony, the final judgment of the court was that the contract was procured by fraud; that the coal company was entitled to an abatement of $121,113.79 from the sum which Boswell had agreed to pay; and that' there should be a further deduction of $51,353.47 for the excess expended on the plant and equipment which would not have been expended but for the deception of Mrs." Browning as to the extent of the coal area. The assignments of error on collateral matters may he more shortly disposed of after discussion of the main issue of misrepresentation.
1. It is perfectly clear that there has been noiadjudication of this or any other matter involved in the litigation in favor of Mrs. Browning, for the report of the master as to the amount due her has never been confirmed. But, even if it had been, it was within the discretion of the district judge to open it.
2. Boswell was in search of coal lands and engaged Ambrose to aid him in finding coal suitable for his purpose. Through Ambrose, Boswell went to the land of Mrs. Browning in Virginia, and after inspection in company with Ambrose, and considerable conversation with Mrs. Browning and her husband and Ambrose, agreed with Mrs. Browning on the terms of the contract which was soon after executed in Baltimore. No complaint is made that the area covered by the lease was supposed by Mrs. Browning to be 1,057 acres and turned out to he only 762.1 acres. The misrepresentation alleged and relied on is that she-and her husband plainly stated as a fact, which they had ascertained by proper tests, that the entire land, except that already min*840ed, was underlaid by Pocahontas coal, No. 3, whereas it turned out that there was a fault line in the land, and that all of the 431.4 acres south of that line was entirely barren of the coal seam.
Adjustment of the equities of the .parties may be difficult, but it is evident that, if the contract between Mrs. Browning and Boswell is enforced according to its terms, Mrs. Browning will receive a large amount of money from the coal company, as assignee, for. property which she did not have, and which therefore neither Boswell nor the coal company ever received from her.
Careful study of the record does not lead to the conclusion that Mrs. Browning was guilty of intentional falsehood in her representation, as to the coal area. It is true that in mining she had followed the seam at one place almost to the surface; that at places it was almost perpendicular; that she had heard from others of a fault line beyond which the seam did not extend;, and that she had been told by Mr. Mann, whom she should have regarded high authority, that she was mistaken as to the extent of her coal field. But it is also true that she had found coal south of Laurel creek, which she and others thought to be the supposed fault line; that, with or without reason, she had been embittered by contests about her coal land.and supposed the hands of others were against her. The evidence of her attitude after the lease, as well as before, shows that these things had so warped her mind and perverted her judgment that she held to her conviction as to the coal area in the face of facts which would have overturned or at least shaken the conviction of an unprejudiced mind.
As to the precise language used by Mrs. Browning in expressing her conviction to Boswell and her reasons for it, the evidence is not reconcilable. But the exact places in which she said she had made entries showing that the coal underlaid all the land, and other details, are not of primary importance. The material fact proved is that she did tell Boswell that by making entries and by other means she had definitely ascertained that the coal seam underlaid all the land. Boswell was no doubt too trustful and should not have made so important a transaction without more careful investigation; but examination as to the extent of the coal field involved delay, and it does not lie in Mrs. Browning’s mouth to say he and his associates must suffer and she herself profit by his reliance on her statement that she had ascertained as a fact that the coal extended under the entire land. Having induced the purchaser to confide in • her positive declaration as to the extent of the coal area, she should suffer the consequences of her error by abating the purchase price, however honest may have been her convictions. McFerran v. Taylor, 7 U. S. (3 Cranch) 270, 2 L. Fd. 436; Smith v. Richards, 38 U. S. (13 Pet.) 26, 10 L. Ed. 42; Kell v. Trenchard, 142 Fed. 16, 73 C. C. A. 202.
“A court of equity would be of little value if it could suppress only positive frauds, and leave mutual mistakes, innpcently made, to work intolerable misckief, contrary to tbe intention of the parties. It would be to allow an act originating in innocence to operate ultimately as fraud, by enabling the party who receives the benefit of the mistake to resist the claims of justice under the shelter of a rule framed to protect it.” Story, Eq. Jur. (10th Ed.) § 155.
*841It is not possible that equity allows an exemption from this rule of those who sell coal lands on an explicit representation as to the area of coal.
The testimony is not convincing that Mrs. Browning intended to aet corruptly with Ambrose as her own agent to sell while he was professing to aid Boswell as his agent in arriving at the value of the coal field. But the law looks with the utmost jealousy on double-dealing, and will always grant relief to a party making a transaction through an agent who, without his consent, has acted in association with the other party; and it is not necessary that there should be any intention to deceive or overreach. United States v. Carter, 217 U. S. 286, 30 Sup. Ct. 515, 54 L. Ed. 769, 19 Ann. Cas. 594; Ferguson v. Gooch, 94 Va. 1, 26 S. E. 397, 40 L. R. A. 234; Empire State Ins. Co. v. American Central Ins. Co., 138 N. Y. 446, 34 N. E. 200; Emons v. Alvord, 177 Mass. 466, 59 N. E. 126. Mrs. Browning’s letter to Ambrose in response to his demand for a commission shows that she had given him to understand that she would pay him a commission upon an advantageous disposition of the coal, and, when the contract was made, she knew Boswell relied on him as his own agent. It made no difference that she may have forgotten her offer to Ambrose or attached no importance to it; she cannot claim the benefit of a bargain made under such conditions, especially when Ambrose by his own admission was acting the double part.
The statement made by M rs. Browning to Boswell that the Consolidated Coal Company had made an offer of a million dollars for the. property was based on another unwarranted inference of an inflamed and prejudiced mind. The evidence of Mrs. Browning that an offer of that sort was made seems to be uncontradicted. From the mere fact of an offer, she rushed to the unwarranted conclusion that it was made on behalf of her supposed enemy, the Consolidated Coal Company.
Importance is not attached to the action and statements of Col. Browning, for the reason that it would not be fair to hold Mrs. Browning bound by the sayings and doings of an inebriate husband, except ill so far as they were sanctioned or confirmed by her.
For the reasons stated, it seems clear to me equity requires that Mrs. Browning should submit to an abatement from the consideration of $200,000 stipulated for in the contract, unless the claim be defeated by the particular defenses hereafter considered.
3. The demand that she should pay for the cost of the plant and equipment beyond what was required for the working of the coal actually acquired by Boswell stands on a different footing. This claim was allowed by the District Court under the principle laid down in Sigafus v. Porter, 179 U. S. 116, 21 Sup. Ct. 34, 45 L. Ed. 113, and other authorities, that one induced by false and fraudulent representations to make a purchase may recover, not only the difference between the real value and the price paid, but also such outlays as were legitimately attributable to the seller’s conduct. On this point I am not only unable to concur in the finding by the District Court of actual fraud, but think the expenditures incurred in the erection of a plant and the *842purchase of equipment beyond the real needs of the company were due to the negligence of Boswell and the coal company. According to the preponderance of evidence, facts were brought to the attention of Boswell, Sheehan, Ambrose, and other officers of the coal company only a few weeks after the lease contract was made, indicating the existence and location of the fatal fault line, and putting them on inquiry, if not on actual notice, that Mrs. Browning was mistaken as to the area 'of the coal land. Boswell, as the managér of the company, shut his eyes and went blindly forward with the expenditures, refusing to heed the warnings which required that he make careful examination before building the plant and supplying the equipment. The only explanation which suggests itself is that he was unwilling to face the truth after he had induced others to invest their money in the enterprise.
Whatever may have been the fault of Mrs. Browning, it was the duty of Boswell and the coal company to use due diligence to minimize the loss consequent upon her action; and the coal company cannot go to the extent of holding her responsible for the gross negligence of one or more of its officers in not heeding warnings as to the deficiency in coal area and in not making an examination before incurring any considerable expense. Warren v. Stoddart, 105 U. S. 224, 26 L. Ed. 1117; Cunningham Iron Co. v. Warren Mfg. Co. (C. C.) 80 . Fed. 878; Lillard v. Kentucky, etc., Co., 134 Fed. 168, 67 C. C. A. 74. Assuming that no warning came until after the contract for the plant had' been made, the company failed in its duty to endeavor to' cancel or modify the contract, and thus reduce the damages falling on Mrs. Browning. For these reasons equity denies the right of the coal company to recover from Mrs. Browning the expenditures on the plant and equipment in excess of that required for the smaller area of coal.
The claim that this neglect of the lessees to have an examination of the coal field and their failure to make complaint of the shortage in coal area for about two years should also defeat the claim for an abatement of the purchase money is not well founded. It is true that such claims should be made as soon as the facts are known, and any subsequent promise to comply with the contract with full knowledge of the misrepresentation would preclude any relief to the lessee or purchaser.' Fitzpatrick v. Flannagan, 106 U. S. 660, 1 Sup. Ct. 369, 27 l. Ed. 211. But Mrs. Browning cannot be allowed to hold the purchase money of property which she represented to be hers when she ought to have known it was not in existence, on the ground that the purchaser should not have relied on her representation.' There is an obvious difference in the degree of promptness required for rescission and for abatement. Odbert v. Miarquet (C. C.) 163 Fed. 892. No degree of diligence in ascertaining the deficiency could have affected its existence, or altered the fact that Mrs. Browning under the contract would receive money which was not her due. The demand for the abatement was made very soon after the deficiency was ascertained and communicated to the coal company by engineers appointed for the pur- ' pose of examination, and that was sufficient.
*8434. By demurrer it was contended that the misrepresentations, if any, were made to Boswell, and that his assignment of the lease contract to the coal company did not carry the right to claim damages for the misrepresentations. The principle does not apply where the right to damages is merely incidental to a subsisting substantial property right which ha.s been assigned and which is itself susceptible of legal enforcement. National Valley Bank v. Hancock, 100 Va. 101, 40 S. E. 611, 57 L. R. A. 728, 93 Am. St. Rep. 933. Besides there can be no doubt that Mrs. Browning knew that the transaction with her was the initial step in a plan to form a coal company which would take over the property and work the mines. Being thus fully advised that the coal company was the real beneficiary of the contract, she is in privity with the company and liable to it as if she had contracted directly with it. Iowa, etc., Co. v. American, etc., Co. (C. C.) 32 Fed. 734; 20 Cyc. 80. The principle was strongly applied by this court in the recent case of National Bank v. Kershaw Oil Mill, 202 Fed. 90, 120 C. C. A. 362.
5. I am unable to agree that Mrs. Browning should escape-abatement on the ground that the provision of the contract, “it is expressly understood and agreed between the parties hereto that this is a lease in gross and not by the acreage,” refers to the extent of the coal seam. Courts do not favor contracts of hazard, and in arriving at the real agreement of parties, where a sale is made on the estimate of a given quantity, the presumption will always be indulged that the quantity controlled or influenced the price. McComb v. Gilkeson, 110 Va. 406, 66 S. E. 77, 135 Am. St. Rep. 944. Having sold her coal at a price based on her distinct representation that it underlay all the land leased, Mrs. Browning must point to something in the contract or other evidence clearly showing that the purchaser released her from the obligation imposed by the representation. The clause of the contract above quoted does not furnish this proof, for it expressly refers to the acreage of the land leased and not to the extent of the coal sold. To hold that Boswell by this provision of the contract meant to release Mrs. Browning from all obligation on account_ of her representations as to the quantity of coal purchased would be to impute to him great stupidity and put upon him and his assignees an unjust hardship by resorting to a forced construction of the agreement.
But, even if the clause quoted could be referred to the extent of the coal field, equity still requires relief for a deficiency so great that it is manifest the contract would not have been made had the truth been known. 39 Cyc. 1250, and cases cited. As is said in Wuest v. Mochrig, 24 Tex. Civ. App. 124, 57 S. W. 864:
“Tlie court acts in stich cases, not upon the contract exhibited by the deed merely, but because it is shown by the evidence that the deed does not operate as by the real contract it was intended, and conveys more o-r less than it should have done.”
6. The next question to be considered is whether the District Judge erred in denying the motion made by Mrs. Browning to have the infant, James S. Browning, Jr., made a party defendant after the filing of the cross-bill or supplemental answer of Boswell and the coal company asking relief from the lease contract.
*844If the remedy of rescission of the contract were appropriate, or if the funds in the hands of Mrs. Browning and to come into her hands under the contract were not adequate to meet all the demands of the infant, the assignment of error on this point would be serious. But the wrong done to the lessees and purchasers was the untrue representation as to the area of the coal field made by Mrs. Browning and not participated in by the infant. For the damages resulting fromtthis wrong, Mrs. Browning, and not her infant son, is primarily responsible. It is true that the infant might be required by a court of equity to abate any unjust enrichment coming to him at the expense of the lessees and purchasers, if full relief for them could not be obtained from Mrs. Browning. But as a practical matter, even if the abatement should be allowed, it would not be necessary to decree anything against the infant in this cause, since Mrs. Browning has in her hands abundant resources arising from her interest in the contract to provide for the abatement without affecting the interest of the infant.
.True, the court with propriety might have granted the motion on behalf of the infant to be made a party so that he might appear by guardian ad litem, and might have decided between the infant, James S.' Browning, Jr., and Mrs. Browning what he ought in good conscience to contribute to the abatement, since it would be manifestly unjust to allow him tS profit by her mistake as to the extent of the common property; McComb v. Gilkeson, 110 Va. 406, 66 S. E. 77, 135 Am. St. Rep. 944. But it is not necessary to send the case back on that issue, for Mrs. Browning and the infant both contend that his rights should be settled in the circuit court of Tazewell county, and the other parties cannot object to that course. Mrs. Browning, therefore, could ask in that court for any relief against the infant, James S. Browning, Jr., which might be properly due her.
7. It is not possible to arrive at the just measure of abatement with absolute accuracy, because Boswell knew some of the land was occupied by the railroad and some by the creek bed; that some had already been mined; and that some had been injured by Mrs. Browning’s bad mining. It would serve no good purpose to extend this opinion by analysis of the evidence and computations. Consideration of the matter leads to' the conclusion that the methods of stating the proportion and making the deductions adopted by the District Judge are as nearly correct as it is possible to make them. It is true, as argued by counsel for the appellant, that the portion of the coal field remote from the plant and to be worked in the future must have been considered by the parties less valuable, acre for acre, than that near the plant and to be' worked immediately. But this consideration is offset by another, which is apparent, that, acre for acre, the value of the large coal field which Boswell supposed he was buying was greater than that of the small one which he actually acquired.
I am . of the opinion, also, that the estimate of $25,000 as the value of the old plant is liberal to Mrs. Browning.
In my opinion the decree of the District Judge should be modified, and the cause remanded for such further proceedings as would be necessary to carry out the conclusions herein expressed.