The payee of a promissory note gave to the promisor a receipt
acknowledging it as given for the purchase of personal property to
be delivered to the promisor on payment of his note. The note not
being paid at maturity, the payee notified the promisor that he
should not recognize his further claim to the property, and after a
further lapse of time without hearing from him, destroyed the note.
Held that the sale was, conditional, not to be completed
until payment of the note.
The remedy by bill in equity to compel a specific performance of
a contract
Page 125 U. S. 91
to sell personal property upon the payment of a promissory note
given by the other party, payable at a date after the making of the
contract, is lost through the laches of the complainant if he wait
five years after the maturity of the note before filing his bill,
and the property meanwhile greatly increases in value.
The Court holds as the result of the transactions between the
parties which are recited in its opinion that, each being a holder
of shares in a railroad company, they agreed that their respective
interests should be joint and equal, and that the appellant should
pay to the appellee the sum necessary to equalize the difference in
cost between them, and that, this agreement not being carried out
by the appellant, the parties substituted a new agreement, based
upon the principal feature of the old one (that the appellee should
sell to the appellant enough of his stock to make the holdings
equal), but that each holding under the new agreement was to be in
severalty and free from conditions.
In equity. Decree dismissing the bill. The case is stated in the
opinion of the Court.
MR. JUSTICE BRADLEY delivered the opinion of the Court.
The bill in this case was filed by Charles G. Davison and Marc
Mundy to compel the defendant, Davis, to deliver to said Mundy 379
1/2 shares of the capital stock of the Louisville City Railroad
Company, alleged to belong to said Mundy as assignee of said
Davison, and to be held by Davis as security for the payment of a
certain note of Davison for $6,521.36, dated November 10, 1876, and
payable in one year, with interest at seven percent, Mundy offering
to pay the amount due on said note and praying for an account to be
taken to ascertain said amount.
The transaction out of which the controversy grew was as
follows:
In November, 1873, Davison, residing in Louisville,
Kentucky,
Page 125 U. S. 92
and Alexander H. Davis, of New York city, were each large owners
of the capital stock of the Louisville City Railway Company,
Davison owning about 800 shares and Davis about 1,200, and they
entered into the following agreement for the purpose of equalizing
their interest, to-wit:
"Memorandum of an agreement made this 10th day of November,
1873, between Chas. G. Davison, of the City of Lou., Ky., and Alex.
Henry Davis, of the City of New York, N.Y., witnesseth:"
"Whereas the said parties of the first and second parts,
respectively, are the actual and equitable owners of certain shares
of the capital stock of the Lou. City R. W., the said Davison
holding or being entitled to hold about eight hundred and the said
Davis holding or being equitable entitled to hold about twelve
hundred shares of the said stock; and whereas the said parties of
the first and second parts are desirous of equalizing their
respective interests as between themselves, and also of acquiring
possession of a greater amount of the said stock: now therefore it
is hereby agreed that the stock now actually or equitably held by
the parties of the first and second parts, respectively, shall be
regarded as common property, each party being entitled to the
one-half ownership of said stock for the considerations hereinafter
to be mentioned."
"It is also agreed that all purchases of the said stock that may
be made hereafter shall be thus made for the joint account of the
parties to this contract, and shall be likewise held by them in
common."
"It is furthermore agreed, as the consideration for the
equalization of their respective interests, by the said parties to
this contract, that the actual cost of the stock held by each party
shall be computed as of this date, and a note given by the said
Davison at any time upon demand for the amount which would be due
from him for the equalization of said joint stock account, it being
understood that two hundred and fifteen (215) shares of said stock
now held by the said second party shall offset in the account a
like number of shares held by the said first party."
"And it is furthermore agreed that in case of the death of
Page 125 U. S. 93
either of the parties to this contract, the survivor shall be
entitled to purchase the stock of said deceased party, within one
year from the time of such decease at a price not exceeding
twenty-five (25) dollars per share, if within twelve months from
the date of this agreement, with an advance of ten (10) dollars per
share for each succeeding twelve months."
"In witness whereof the parties of the first and second parts
hereby attach their hands and seals this tenth day of November,
1873."
"[Signed] ALEX. HENRY DAVIS"
"[Signed] C. G. DAVISON"
"Witness: [Signed] E. H. SPOONER"
On the 11th of November, 1876, Davis made out a report or
statement of the account between him and Davison, showing that he,
Davis, held 1,571 shares which cost $32,723.41, and that Davison
held 812 shares which cost $19,680.69, and that to make them equal,
Davis must transfer to Davison 39 1/2 shares, and Davison must pay
therefor the sum of $6,521.36, or, as Davis expressed it, in the
report, "that is the result as I make it -- that I owe you 379 1/2
shares of stock, and you owe me $6,521.36, as of November 10,
1876."
This account was assented to by Davison, and on the 29th of
January, 1877, the parties met, and Davison delivered to Davis his
promissory note for said sum of $6,521.36, dated November 10, 1876,
payable one year from date, with interest at seven percent, and
Davis, retaining the stock, delivered to Davison a receipt for the
note in the words following, to-wit:
"SYRACUSE, N.Y. Jan. 29, 1877"
"Received of C. G. Davison his note, dated November 10, 1876,
for $6,521.36, payable one year from date, with interest at seven
percent Said note is given me for the purchase of three hundred and
seventy-nine and one-half shares of stock of the Louisville City
Railway Co. now held by me and to be delivered, upon payment of his
note, to said Davison."
"ALEX HENRY DAVIS"
Page 125 U. S. 94
The note became due on the 12th of November, 1877, but was not
paid. On the 16th of September, 1882, Davison, by an endorsement on
the receipt, transferred the 379 1/2 shares mentioned therein to
Mundy, who assumed to pay the debt due to Davis therefor, and in
January, 1883, Mundy offered to pay Davis the amount due on
Davison's note, and demanded the 379 1/2 shares of stock, which
Davis refused. Thereupon, on the 27th of March, 1883, the present
bill was filed. It sets forth the circumstances of the transaction
substantially as above stated, but contains allegations to the
effect that the stock in controversy was regarded by the parties as
belonging to Davison, and that he agreed and consented that the
defendant might hold it by way of pledge or collateral security for
the payment of his note, whereas, the defendant insists that the
transaction was an agreement for a sale of the stock, to be
assigned and transferred to Davison when it was paid for. The
former take their stand on the terms of the original agreement of
November, 1873, the latter on the receipt given in January, 1877.
If the transaction relating to the 379 1/2 shares of stock was a
sale upon condition of payment of the note at maturity, the
nonperformance of the condition defeated it if the vendor saw fit
to avail himself of the breach, which he did. If it was only an
agreement for a sale, the delay of the complainants in offering to
pay the note and demanding a delivery of the stock would preclude
them from asking for a specific performance of the agreement, even
if the frame of the bill were adapted to such a decree, which is
very doubtful, although it contains a prayer for further and other
relief. The delay was upwards of five years after the note became
due, and the circumstances which occurred enhance the right of the
defendant to rely on that defense against any claim for specific
performance. Both Davison and Davis were examined as witnesses, and
the latter states positively that, shortly before the maturity of
the note, he wrote to Davison that if he did not meet the note at
maturity he (Davis) should not recognize any further claim of his
to the stock in question, and that sometime in the year 1878 he
considered the matter at an end, and destroyed the note. Davison,
in his testimony, admits
Page 125 U. S. 95
that no communication took place between him and Davis in
relation to the stock after February, 1878. At that time, he states
that a conversation occurred between them in which Davis offered to
carry his (Davison's) stock in the company until it worked out, but
that nothing was said about the particular stock in question. The
conversation, as he afterwards explained, related to 579 shares
bought by him of one Johnson, and not to the 379 1/2 shares.
Another circumstance of weight is the fact that the stock would not
sell for more than $20 per share, until long after the note became
due, and that afterwards, when Davis himself took hold of the road,
the stock appreciated so as to sell for nearly or quite double that
amount. It was after this appreciation of the stock in value that
Davison transferred his supposed interest to Mundy, who then made
the offer to pay Davison's note and take up the stock. Under all
these circumstances, the laches of Davison and Mundy is a perfectly
good defense against any claim of relief from the condition if it
was a sale upon condition, or for specific performance of the
agreement if it was an agreement for a sale. In
Brashier
v. Gratz, 6 Wheat. 528,
19 U. S. 541,
Chief Justice Marshall said:
"This, then, is a demand for a specific performance, after a
considerable lapse of time [five years] made by a person who had
failed totally to perform his part of the contract, and it is made
after a great change, both in the title and in the value of that
which was the subject of the contract, and by a person who could
not have been compelled to execute his part of it had circumstances
taken an unfavorable direction."
The reason why the party seeking relief in that case could not
be compelled to execute his part of the contract was his pecuniary
inability to execute it -- a circumstance which also existed in the
present case.
But, as before stated, the complainants contend that the nature
of the transaction between the parties is to be gathered from the
agreement of November 10, 1873, and not solely from the receipt
given in January, 1877, and that by that agreement the parties
became joint owners of the stock then held by each, and of all that
they or either of them might
Page 125 U. S. 96
afterwards purchase. That agreement was undoubtedly the basis of
the settlement made in January, 1877, but it cannot be invoked to
control the terms of that settlement. The agreement amounted to
this, that the respective interests of the parties in the stock of
the company should be joint and equal, Davison paying the amount
necessary to equalize the difference of costs between them. It
appears from the evidence that the stock held by the two would
control the management of the company, and the object of the
agreement, stated shortly, was that they should stand together and
be equally interested, Davison being at that time president of the
company, and Davis the largest stockholder. Up to January, 1877,
Davison had never paid the difference in the cost of the stock. The
parties then came to the settlement referred to. Each still held
his own individual shares as at first, and as purchased afterwards,
no transfers having been made. They now concluded, instead of
holding the stock in common, to make an equal division of their
aggregate shares, and to do this, Davis must transfer to Davison
379 1/2 shares, and, according to the terms of the original
agreement, the latter must pay therefor the sum of $6,521.36. In
making this change in their proposed relations, the parties treated
the transfer of the 379 1/2 shares as a sale, the terms of which
are specified in the receipt of January 29, 1877. Those terms are
clear and unmistakable. It is expressly declared that the note was
given for the purchase of 379 1/2 shares of the stock of the
Louisville City Railway Company, to be delivered to Davison upon
the payment of his note. A mere receipt is subject to explanation,
but an agreement or contract in a receipt is as conclusive as in
any other paper executed between the parties. Therefore, although
the object of the original agreement was, or may have been, a joint
and equal ownership of stock, with right of purchase by the
survivor in case of death, yet it is apparent that this plan was
abandoned at the time of the settlement for that of an equal
division of the stock of both, to be held in severalty only. In
other words, instead of the old contract, which had never been
fully carried into effect, the parties entered into a new
Page 125 U. S. 97
contract based upon the principal feature of the old, that Davis
should sell to Davison a sufficient amount of stock to make their
holdings equal, but to be held in severalty, free from any
conditions, and with liberty on the par of each to dispose of his
stock as he should see fit, the price being fixed in accordance
with the terms prescribed in the original agreement.
That this was the real nature of the transaction which took
place in January, 1877, is apparent from the circumstances and from
the subsequent conduct of the parties. Davison, being in
embarrassed circumstances, did not retain his stock, but had parted
with it all as early as the spring of 1878, thus entirely ignoring
the objects and purposes of the agreement of 1873. The answer of
the defendant contains the following statement, to-wit:
"The respondent further says that said agreements were entered
into by him in the belief and with the assumption that said Davison
was the holder or entitled to hold about eight hundred shares, as
represented by him, and respondent does not know how much of said
stock said Davison held or was entitled to hold, but he never came
into possession or control of about eight hundred shares or near
that amount, and as early as the spring of 1878 ceased to be a
stockholder; that he then turned over to the company whatever stock
he held in part payment of his indebtedness to the company, and the
intent and purpose of the agreement between said Davidson and
respondent wholly ceased and failed."
This averment is substantially proved by the testimony of both
parties, Davison and Davis. The former continued president of the
railway company until February, 1878, but was not reelected after
that time. He had become indebted to the company, which had run
down financially, and, as before said, parted with all his stock.
It is plain, therefore, that the main purpose of the original
agreement had failed and had been abandoned. The only thing we have
to guide us as to what the new contract was is the receipt of
January 29, 1877, the terms of which we have already adverted to.
From those terms it is clear that the sale was not to be completed
until the payment of Davison's note.
Page 125 U. S. 98
The language is "said note is given me for the purchase of 379
1/2 shares of stock now held by me and to be delivered, upon
payment of his note, to said Davison." That such language amounts
to conditional sale, or to an agreement for a sale on performance
of the condition,
see 2 Benjamin on Sales (p. 252, second
ed.), and the cases there collected.
If this is a correct view of the case, it is plain that the only
equitable remedy applicable to it is a bill for relief from the
condition, or for specific performance. Both of these remedies, as
we have seen, have been lost by the laches of the complainant.
The decree of the circuit court is affirmed.