Cross v. Zellerbach , 63 Cal. 623 ( 1883 )

Ross, J.

These cases have been argued and submitted together. The first is an appeal by the defendant Zellerbach, and the second an appeal by the defendant, the Eureka Lake and Yuba Canal Company Consolidated. These defendants and the plaintiff are the real parties to the controversy. On the first appeal of Zellerbach, reported in 55 Cal 431, the appeal came up and was considered on, (1) the complaint filed July 1, 1864, by Sigourney—the present plaintiff’s intestate—which complaint was in the usual form for the foreclosure of a mortgage given to secure the payment of a promissory note for ten thousand dollars, executed July 2, 1859, to Sigourney, by a corporation called the Eureka Lake Company; (2) a complaint in intervention filed by the Eureka Lake and Yuba Canal Company Consolidated; (3) the answer of Sigourney to the complaint in intervention; and, (4) the findings and decree of the court. There were some other pleadings in the case, not, however, important to mention.

On that appeal it was rightly held here that the decree of the court then under review, which adjudged Sigourney a lien on the twelve hundred and fifty shares of the stock of the Eureka Lake and Yuba Canal Company Consolidated, to secure the payment of the ten thousand dollar note set out in the complaint then before the court, and which directed a sale of that stock to pay the amount of that note, was erroneous—first, because the complaint contained no averment to sustain such decree-; secondly, because the contract between Sigourney and Zellerbach of date August 23, 1865, did not provide for any lien on the shares of stock as security for the note then in suit; thirdly, because, even if the court could have looked to the complaint in intervention in support of the decree, that complaint showed full compliance on the part of Zellerbach with all of the agreements, covenants, and conditions of the contract of August 23, 1865, which performance, according to the terms of that contract, entitled Zellerbach to the surrender of the note and mortgage on which the complaint, then under consideration, was based, as also the notes and the mortgage made to Zellerbach and Marsellus by the Eureka Lake Water Company for cancellation; and lastly, because the findings then before us showed that none of the stock in question was ever accepted by Sigourney as security, or as a compliance with the contract of August 23, 1865, but, on the contrary, that it was deposited with Parrott only in escrow, and that the contingency upon which the transfer was to take effect had never happened.

But, by the records now brought here, the case is presented in a very different aspect. It now appears that, after the going down of the remittitur from this court, the plaintiff was permitted to, and did, file in the court below a supplemental complaint, to which Zellerbach and the Eureka Lake and Yuba Canal Company Consolidated filed an answer; the complaint in intervention of the last-mentioned company was, by the permission of the court, withdrawn, and there was filed by it a cross-complaint, a demurrer to which, filed by Zellerbach, was sustained by the court, and which ruling constitutes the ground of the present appeal, taken by the cross-complainant — the other appeal being brought by Zellerbach.

An examination of the pleadings shows that the decision of this court on the former appeal does not cover the points now presented. Facts are now alleged which were not then before the court, and which, if true, materially change the rights of the parties. The averments of the cross-complaint must, of course, be taken as true, and such of the averments of the supplemental complaint as were found by the court below to be true, and such as are not denied, must also be accepted as facts on these appeals. Both the supplemental and cross-complaints allege, and the court below on the last trial found the fact to be, that, in pursuance of the provisions of the contract of August 23, 1865—which is fully set out in both the supplemental and cross-complaints — Sigourney executed assignments to Zellerbach of the note and mortgage on which the original complaint was based, and of the twelve thousand dollar note made to him by the Eureka Lake Water Company, together with his (Sigourney’s) interest in the mortgage given by the Eureka Lake Water Company to secure the payment of the note last mentioned and the twenty-eight thousand dollar note given to Marsellus, and that thereupon Zellerbach executed and delivered to Sigourney his two promissory notes for forty and ten thousand dollars, respectively, as provided for by the contract of August 23,1865, and which are set forth in the supplemental and cross-complaints; and, further, that pursuant to the provisions of the contract of August 23d, Sigourney deposited the note and mortgage set out in the original complaint, and the twelve thousand dollar note and mortgage securing the same, together with the assignments thereof, with Parrott, to be by him held as collateral security for the payment of the forty and ten thousand dollar notes executed to Sigourney by Zellerbach, or until Zellerbach should deposit with Parrott as security for said two last mentioned notes, the shares of stock of the Eureka Lake and Yuba Canal Company Consolidated as provided for in and by the contract of August 23d. Upon the deposit of the stock as provided for by the contract, or upon the payment of Zellerbach’s notes for forty and ten thousand dollars, Parrott was to deliver up to Zellerbach for cancellation the notes and mortgages deposited with him by Sigourney. Zellerbach, it must be remembered, had become the owner of the property covered by the mortgage set out in the original complaint and of that covered by the mortgage executed by the Eureka Lake Water Company to secure the twelve and twenty-eight thousand dollar notes given to Sigourney and Marsellus, respectively, the latter of which he had also acquired; and being also the owner and controller of other property of like character as that mortgaged, had become desirous of organizing a corporation in the State of Yew York, to which he might sell all of the said property. To accomplish his purpose in that regard it became necessary to free the property of all liens, and it was with that end in view that he entered into the contract with Sigourney—the holder of the liens—of date August 23, 1865. Both the supplemental and cross-complaints, as also the findings of the court below, show that Sigourney kept and performed all of the agreements, covenants, and conditions on his part provided to be kept and performed, in and by that contract. Zellerbach performed a part of his. He executed the forty and ten thousand dollar notes to Sigourney, and paid the interest thereon to the 19th day of December, 1876. He also deposited with Parrott, pursuant to his agreement, the one sixteenth part of the capital stock of the Eureka Lake and Yuba Canal Company Consolidated, consisting of twelve hundred and fifty shares. But he did not deposit with Parrott an additional one sixty-fourth part of the capital stock of that corporation as in and by the contract of August 23, he had agreed to do. The cross-complaint, however, alleges that the twelve hundred and fifty shares he did deposit were so deposited, “as security for the payment of said promissory notes (for forty and ten thousand dollars respectively), which said stock, though less in quantity than called for by the contract, was by the parties thereto, and by each of them, taken and treated as a compliance with the contract, and the said stock was managed, controlled, and voted by the said Sigourney, or by his authority, and remained in the hands of John Parrott, as trustee under said contract until disposed of as hereinafter stated.”

Parrott, according to the averments of the cross-complaint, having, before receiving the stock, become satisfied, and so reported to the cross-complainant, that the property was in the condition required by the contract of August 23, 1865, and Zellerbach having represented to it that the encumbrances in the said contract referred to were deposited for him to be delivered up and cancelled upon the conveyance to the cross-complainant of the property, and upon the deposit of the stock with Parrott as by the contract provided, the cross-complainant, relying upon such statements and believing them to be true, was thereby induced to purchase, and on December 20, 1865, to take from Zellerbach a deed of conveyance, whereby he conveyed to it all of the property referred to ip. the contract of August 23d, including that described in the mortgage sought to be foreclosed by the original complaint filed in this action, and by which deed Zellerbach warranted and bound himself to defend the title to the property conveyed as against all liens and encumbrances, or adverse claims, and covenanted to and with the grantee, the cross-complainant here, that all of the property was free and clear of liens and encumbrances of every nature and kind whatsoever. When the twelve hundred and /fifty shares of stock which were deposited with Parrott were sold under the decree of the District Court, which was subsequently reversed by this court on the former appeal, they were purchased by the cross-complainant for the sum of $66,255.63, which, according to the averments of the cross-complaint, was at least twenty thousand dollars in excess of the market value thereof. Cross-complainant, according to the averments of its complaint, was induced to bid said sum for the stock by Zellerbach, who represented to it that, being bound by the covenants in his deed of conveyance to hold cross-complainant harmless from the lien of plaintiff’s mortgage, he was desirous of having the twelve hundred and fifty shares of stock sold for a sum sufficient to satisfy the entire demand of plaintiff and costs, and that, if cross-complainant would bid therefor such sum, he, Zellerbach, would, upon being given time therefor, purchase from cross-complainant said twelve hundred and fifty shares at the price by it paid therefor, Avith interest thereon; Avhereupon, and relying upon such statements, cross-complainant purchased the stock as aforesaid, and thereupon, and on the same day, to wit, February 13,1879, cross-complainant entered into a Avritten agreement Avith Zellerbach, Avhereby, in consideration of the payment to it by him, at any time Avithin eighteen months thereafter, of the sum of §66,255.63, and interest thereon at nine per cent per annum, it AArould deliver to the said Zellerbach the tAvelve hundred and fifty shares so by it purchased, together with an additional one thousand shares of such stock, and would deliver to one Allenberg an additional one thousand shares, and pay to said Allenberg íavo thousand dollars in money, and to the said Zellerbach a like sum of íavo thousand dollars in money; Avhich said íavo several sums of money Avere so paid by cross-complainant, and said one thousand shares of stock Avere by it so delivered to Allenberg; by all of Avhich, it is averred, Zellerbach approved and ratified the hypothecation and holding of the twehre hundred and fifty shares of stock as collateral security for the payment of his notes for forty and ten thousand dollars respectively, and approved and ratified the sale thereof, and the application of the proceeds thereof, to the satisfaction of the amount due the plaintiff. The amount so bid and paid by the cross-complainant for the stock Avas, according to the averments of the cross-complaint, as also those of the supplemental complaint, sufficient in amount, after deducting costs and the expenses of sale, to fully satisfy the plaintiff’s claim in this action, and was, by the officer making the sale, paid to and received by Sigourney; and both the supplemental and cross-complaints pray that the plaintiff be decreed to retain and hold the same in full satisfaction of his claim in this action, and that lie be adjudged to fully satisfy of record, and to cancel and deliver up the note and mortgage described in the original complaint, and to cancel and deliver up to Zellerbach the forty and ten thousand dollar notes executed by him, and that the twelve thousand dollar note executed to Sigourney by the Eureka Lake Water Company, together with the mortgage executed by that corporation to Sigourney and Marsellus, be decreed to be fully satisfied.

If the facts be as stated —aud for the purposes of our decision we must so consider them—why should not such a decree be entered ? It is true that the original complaint was one simply for the foreclosure of the mortgage executed July 2, 1859, by the Eureka Lake Company. But, during the pendency of the action, Zellerbach, who had become the owner of the property subject to the liens of Sigourney, desired to free the property of those liens in order that he might sell it, with other property, to the Eureka Lake and Yuba Canal Company Consolidated. For that purpose he made the contract with Sigourney of August 23, 1865. Ho objections have been urged to the validity of that contract, and it is clear that none could be successfully urged. Sigourney performed his part of the contract, and Zellerbach performed his obligations thereunder in part. He executed to Sigourney the forty and ten thousand dollar notes therein provided for, and from that time forth, according to the terms of the contract, the note and mortgage set out in the original complaint, as also the note and mortgage executed by the Eureka Lake Water Company, were held only as collateral security for the payment of Zellerbach’s notes for ten and forty thousand dollars respectively. The latter became the principal obligations, and were assumed by Zellerbach in order that he might free the property of the liens held by Sigourney, to the end that he might effect the sale he contemplated making to the Eureka Lake and Yuba Canal Company Consolidated. In further pursuance of the contract with Sigourney, he (Zellerbach) deposited with Parrott twelve hundred and fifty shares of the capital stock of the Eureka Lake and Yuba Canal Company Consolidated. These shares were'to be held as collateral security for the payment of the forty thousand dollar note executed by Zellerbach to Sigourney. The additional amount of one sixty-fourth part of the capital stock of the same corporation which the contract required Zellerbach to deposit as collateral security for the payment of the ten thousand dollar note executed by him to Sigourney, he did not deposit; but the cross-complaint alleges that the twelve hundred and fifty shares so deposited were by both Sigourney and Zellerbach “taken and treated as a compliance with the contract, and the stock was managed, controlled, and voted by the said Sigourney, or by his authority, and remained in the hands of John Parrott as trustee under said contract ” until taken and sold by the sheriff.

Whether under such a state of facts a lien attached to the twelve hundred and fifty shares of stock for the payment of the forty and ten thousand dollar notes executed by Zellerbach, or either of them, we find it unnecessary to determine; for when the stock was sold under and by virtue of the decree of the District Court, which was subsequently reversed by this court, the cross-complainant purchased it, at the instance and at the request of Zellerbach, and under a definite and specific contract with him, for a sum largely in excess of its market value, and sufficient to discharge what Zellerbach had bound himself to discharge, to wit: the liens on the property held by Sigourney. The money thus paid and bid for the twelve hundred and fifty shares of the stock of the Eureka Lake and Yuba Canal Company Consolidated, less costs and the expenses of sale, was paid over to Sigourney, and according to the averments of the supplemental and cross-complaints, was sufficient in amount to satisfy the entire demand of the plaintiff. If the facts be as stated we see no reason why a decree should not be entered substantially as prayed for in both the supplemental and cross-complaints, to the effect that the plaintiff retain and hold the money so paid in full satisfaction of his demand in the action, and that he be adjudged to satisfy of record and to cancel and deliver up the note and mortgage described in the original complaint, and to cancel and deliver up to Zellerbach the forty and ten thous- and dollar notes executed by him, and that the twelve thousand dollar note executed to Sigourney by the Eureka Lake Water Company, together with the mortgage executed by that company to Sigourney and Marsellus be decreed to be fully satisfied. Such decree would give effect to the contracts of the parties and do exact justice between them. All of the parties in interest are, with sufficient pleadings, before a court of equity, which can and will take hold of the entire case and give effect to their contracts legally made.

We cannot at all assent to" the proposition that the agreement under which the cross-complainant purchased the stock was “binding on nobody, and -utterly void for Avant of consideration.” The liens held by the plaintiff were the very liens Zellerbach had covenanted to remove; the debt for which they stood as security had become his debt, and, according to the facts as now made to appear, it was for the very purpose of paying that debt and satisfying those liens that he induced the cross-complainant to pay for the stock a sum of money largely in excess of its value and sufficient to pay the debt, and thereby discharge the liens, agreeing at the same time, and as part of the same transaction, to repurchase the stock, within a given time, at the same price (with interest as provided for), and obtaining for himself two thousand dollars in money, and a contract for an additional one thousand shares of stock, together Avith íavo thousand dollars in money, and one thousand shares of stock for one Allenberg. Performance of the agreement on the part of the cross-complainant is averred, and it would be grossly inequitable to permit Zellerbach to repudiate the agreement under Avhich, at his request, the money of the cross-complainant went to pay his debt, and to remove encumbrances which he had, in the most solemn manner, bound himself to remove, and by Avhich he received other and further considerations of value.

Judgment reversed and cause remanded, with directions to the court below to overrule the demurrer to the cross-complaint, and for further proceedings not inconsistent with this opinion.

Myrick, J., Sharpsteiy, J., McKee, J., and Thorytoy, J., concurred.