The appellant signed and delivered to the appellee a paper in
which he said
"I hold of the stock of the Washington and Hope Railway Company
$33,250 or 1,350 shares, which is sold to Yaul F. Beardsley [the
appellee], and which, though standing in my name, belongs to him,
subject to a payment of $8,000, with interest at same rate, and
from same date as interest on my purchase of Mr. Alderman's
stock."
Held that this was an executed contract, by which the
ownership of the stock passed to the appellee, with a reservation
of title, simply as security for the purchase money.
On the second question at issue, the Court holds that the
contested facts establish a joint interest in the parties in the
railroad enterprises which form the subject of the controversy, and
not a mere stock transaction.
This was a suit in equity brought by the appellee as plaintiff
below, against the appellant and the Arkansas and Louisiana Railway
Company to enforce the rights of the plaintiff in the railway,
under certain alleged trusts. The material facts in this
controversy were stated by the court as follows:
The undisputed facts of this case are as follows: on January 1,
1882, appellant signed and delivered to appellee the following
instrument:
"W. H. Carruth, President. J. D. Beardsley, Superintendent"
"Superintendent's Office, Washington and Hope Railway
Company"
"Washington, Ark., Jan. 1st, 1882"
"I hold of the stock of the Washington and Hope Railway Company
thirty-three thousand two hundred and fifty dollars, or thirteen
hundred and fifty shares, which is sold to Paul F. Beardsley, and
which, though standing in my name, belongs to him, subject to a
payment of eight thousand dollars, with
Page 138 U. S. 263
interest at same rate and from same date as interest on my
purchase of Mr. Alderman's stock."
"Witness: J. H. BURT J. D. BEARDSLEY"
The parties to the litigation are brothers. Prior to the
execution of this instrument, and in 1877, the Washington and Hope
Railway Company had been incorporated for the purpose of building a
railroad between Washington, in Hempstead County, and Hope Station,
on the Iron Mountain and Southern Railway, a distance of ten miles.
On September 10, 1879, the company, having graded a roadbed,
entered into a contract with appellant for the completion and
equipment of the road, the consideration of which contract on the
part of the railroad company was, among other things, the transfer,
practically, of the entire stock in the company to appellant. In
the execution of this contract, appellant associated Vinton
Alderman under an agreement that they would contribute equally to
the expense and divide equally the stock of the company. By the
first of January, 1881, the contractors had complied with the
contract and completed the road, and it was accepted as of that
date by the company, and paid-up stock to the amount of one hundred
thousand dollars was issued to them, excepting therefrom a few
shares to persons to qualify them to be directors of the company.
Alderman became tired of his investment and proposed to sell his
interest. This proposition, made to J. W. Paramore, president of
the Texas and St. Louis Railway Company, came to the knowledge of
appellant. Fearing complications if the sale should be made to that
party, he wrote to Alderman offering to buy the stock for twelve
thousand dollars on a credit. This offer was accepted, and the
stock transferred to appellant, who thereby became the owner of
substantially all the paid-up stock of the company. After such
purchase, he executed the instrument of January 1, 1882. Prior to
this purchase from Alderman by appellant, appellee had come from
California and commenced working on the road. Appellant continued,
under construction contracts, in possession and control of the road
until February, 1886, a period of a little more
Page 138 U. S. 264
than four years from the date of the agreement. During these
years, both brothers were giving up their time and labor to the
operation and extension of this railroad, appellant having the
principal charge, as superintendent or manager. The road was
widened from a narrow to a standard gauge. Two corporations were
organized, the one looking toward an extension of the road eastward
and the other to a like extension westward, and in those extensions
contracts were entered into between the several companies and the
appellant, and much work was done thereunder. In the execution of
those contracts, the appellant associated with himself other
parties, the details of which contracts and arrangements with his
associates are immaterial to the matter in controversy. Until about
the first of January, 1886, the brothers worked harmoniously
together in this enterprise, the appellee contending that all this
time their relations were substantially those of joint owners,
their respective interests being in the proportion of two-thirds to
appellant and one-third to appellee. About the first of January,
1886, differences arose between the brothers, in consequence of
which the appellee was discharged from service on the road by the
appellant, acting as general manager. At the same time, the
appellant repudiated all interest of the appellee in the
enterprise. After this disagreement and discharge, the appellee
brought this suit to establish his rights as the owner of
substantially one-third of the property. The case went to proofs
and hearing, and the circuit court granted a decree in appellee's
favor. From such decree appellant appealed to this Court.
Page 138 U. S. 265
MR. JUSTICE BREWER, after stating the facts as above, delivered
the opinion of the Court.
The first and principal question in this case arises on the
contract of January 1, 1882. By the appellant it is claimed that
this is a mere executory contract, an agreement to sell; by the
appellee, that it is an executed contract, a sale with reservation
of security. The distinction is obvious, and the significance
important. If an agreement to sell, the moving party must be the
purchaser. If a sale, an executed contract with reservation of
security, the moving party is the vendor, the one retaining
security. If an agreement to sell, the moving party, the purchaser,
must within a reasonable time tender performance or make excuse
therefor. If an executed contract,
Page 138 U. S. 266
a completed sale, then the moving party is the vendor, the
security holder, and he assumes all the burdens and risks of delay.
What, therefore, is the significance and import of this instrument?
This, as claimed by the appellant, is not to be determined by any
separate clause, but by the instrument as a whole. The rule is well
stated by Mr. Justice Strong, delivering the opinion of this Court
in
Heryford v. Davis, 102 U. S. 235,
102 U. S. 243,
where he says:
"The answer to this question is not to be found in any name
which the parties may have given to the instrument, and not alone
in any particular provisions it contains, disconnected from all
others, but in the ruling intention of the parties, gathered from
all the language they have used. It is the legal effect of the
whole which is to be sought for. The form of the instrument is of
little account."
It is not always easy to determine whether an instrument is a
contract of sale or one to sell, yet certain rules of
interpretation have become established. These rules are noticed in
the opinion delivered in the
Elgee Cotton
Cases, 22 Wall. 180,
89 U. S. 188.
Two of these rules have no application here, as they refer to those
steps necessary to put the property into a deliverable state, or
the determination of the price by weighing, measuring, and testing.
The third only is significant, which is there stated in these
words:
"Where the buyer is by the contract bound to do anything as a
consideration, either precedent or concurrent, on which the passing
of the property depends, the property will not pass until the
condition be fulfilled, even though the goods may have been
actually delivered into the possession of the buyer."
Tested by this rule, this instrument must be adjudged not a
contract to sell, but a sale with reservation of security. Note the
language of the instrument, "which is sold." Again, "which, though
standing in my name, belongs to him." These words imply nothing
executory, but something executed. It is not that the vendor will
sell, but has sold. Not that the title remains in the vendor, yet
to be transferred, but that it already has been transferred. The
ownership, equitable if not legal, is in the vendee. It is not that
the stock belongs to the
Page 138 U. S. 267
vendee, upon payment, as appeared in the case of
French v. Hay,
22 Wall. 231, but that it is now his, subject to a lien. Its
meaning is therefore that of a sale, with retention of the legal
title as security for purchase money. It is an equitable mortgage,
and the rights created and assumed by it are like those created and
assumed when the owner of real estate conveys by deed to a
purchaser, and takes back a mortgage as security for the unpaid
purchase money. Under those circumstances, action is the duty of
the vendor and mortgagee, and delay imperils no right of the
purchaser and mortgagor. We have little doubt as to the
significance of this contract, and hold that its effect was to make
the appellee one-third owner with the appellant of the stock of the
railroad company. Such obviously is the import, and therefore such
must be adjudged the intention of the parties by this contract.
With this construction of the instrument, it is unnecessary to
consider the various suggestions made by counsel for appellant upon
the theory that the contract was purely executory, a mere contract
to sell. Taking it as an executed contract, one by which the
ownership passed to the appellee, with a reservation of title
simply as security for the purchase money -- in other words, an
equitable mortgage -- we pass to the second and most difficult
matter in the case.
Appellant contends that it was a mere stock transaction, while
appellee contends that it is not only in harmony with, but a part
of, the full arrangement between the brothers, to-wit, a joint
interest in the railroad enterprise on the basis of a two-thirds
share in the appellant and a one-third in the appellee. The
instrument, by itself considered, expresses a stock transaction. If
that was the extent of the arrangement between the brothers, then
the appellant might enter into subsequent contracts with the
railroad company, or any new corporations organized by the parties
interested in the old company, without thereby interesting his
brother in such contracts or entitling him to a share in the
proceeds thereof. He, of course, could not deprive him of any
interest in the corporation, or the corporate property, evidenced
by his ownership of stock; but ownership of stock of a corporation
does
Page 138 U. S. 268
not of right give a proportional interest with every contractor
in the contracts made by him with the corporation. Was this
instrument part and parcel of a general arrangement between the
brothers that they should be jointly interested in the railroad
enterprise, looking at it as a whole, in proportions of one-third
and two-thirds? Along this line of inquiry there is a painful
contradiction between the brothers, the two parties who alone fully
understood their relations, and who are necessarily the principal
witnesses concerning them. In a general way it may be said that the
testimony of appellee is that the understanding between the
brothers was that they were to be jointly interested in the whole
enterprise in the proportion stated, while, on the other hand, that
of the appellant is that there was no talk or thought of
partnership, or unity of ownership, and all that was thought of or
agreed upon between them was expressed by the written contract -- a
mere contract to sell stock. A great deal of testimony was
introduced as to what was apparent to other parties employed on
this railroad as to the relations between the brothers, and as to
what they knew and understood to be those relations. The
significance of such testimony is limited. The brothers were in
fact engaged in the operation and extension of the road, each
holding a position in the corporate management. If there was a
personal arrangement between them, it is not strange that the terms
and the extent of it were not known by the employees or disclosed
to or talked of with them. Obviously during the years 1882 to 1886
the relations between the brothers were harmonious, and neither
thought of misunderstanding or difference. That they consulted
together often about the enterprise appears from the testimony of
the appellant as well as that of the appellee, and while the
appellant limits the effect of his testimony by the statement that
he also consulted with the other employees, the fact remains
conceded by him, and asserted by appellee, that during those years
they consulted about the operation, the management, and the
extension of the railroad enterprise. In the midst of this
unpleasant contradiction we notice these significant facts: after
the completion of the ten miles of narrow-gauge road provided for
by
Page 138 U. S. 269
the original organization, the enterprise grew larger in the
contemplation of its promoters and owners. A broadening of the road
from a narrow to a standard gauge, and an extension eastward and
westward, became their scheme. For this, two corporations were
organized -- one, as stated, looking to its extension eastward and
the other to a like extension westward. In the organization of
these corporations, four hundred shares were taken by the appellant
and two hundred by the appellee. This is upon the same basis of
interest claimed by appellee in the whole railroad enterprise.
These two subscriptions covered practically the entire stock, so
that the new corporations were owned as the original. Interpreting
these transactions, it must be borne in mind that neither brother
was putting into this enterprise, to any extent, his individual
property. The thought was to make the enterprise pay for itself,
and out of it, and out of local aid, and out of their efforts to
promote it and secure outside assistance, the accomplishment of the
scheme, with its resultant benefits, was contemplated. So that when
into these new enterprises the brothers passed, with the same
proportional interests as in the old, it is very significant, in
the face of disputed testimony, as to their unity of interest in
the whole railroad enterprise.
Further than this, the letter of appellant to appellee, of date
February 7, 1886, and after differences had arisen between the
brothers, is worthy of note. In that letter, after referring to the
fact that Alderman and himself had undertaken to build the road,
that thereafter Alderman desired to sell, and that he had purchased
his interest, he says:
"Sometime after this, Mr. Alderman desired to sell me his
interest in the road, but I declined to purchase it. In the course
of the next six months, I declined it several times. Later, Col.
Paramore, of the Texas and St. Louis Railway, wrote me that Mr.
Alderman had offered him his interest at $12,000, and that he was
considering the purchase. Finding this, if carried out, would
involve us in trouble with the Iron Mountain Railway, I wrote Mr.
Alderman that day, saying I would take his interest at $12,000, and
by return mail he advised me that he considered it sold to me.
After I had purchased this interest, you importuned me to let
Page 138 U. S. 270
you have it. This I declined to do, but I finally consented to
let you have two-thirds of the purchase, you to pay me $8,000, with
interest from the time of my purchase, and at the same rate I paid
Mr. Alderman, stock to remain in my hands until paid for. Previous
to this time, the road had been legally valued at $100,000, and
stock to that amount had been issued or was ordered to be issued.
At the time of your purchase, you represented that you expected to
get a considerable sum of money from a mine in California, and you
would pay this on the purchase. So far, however, I believe you have
not paid anything. Sometime afterwards, knowing that, as our
understanding was purely verbal, you would have no rights whatever
in case of my death, I made a written memorandum showing that you
were entitled to one-third of the stock then standing in my name,
or $33,333, subject, however, to a payment of $8,000, with interest
as aforesaid. This memorandum I gave you, and I presume you still
have it. Here, the business part of our transactions, so far as
interest in the property is concerned, rests."
Now the transactions between appellant and Alderman were not
mere stock transactions. They were jointly interested in the
construction contract, and by the completion thereof became
practically joint owners of the road. That their relations to the
corporation were evidenced by stock certificates does not preclude
the fact that, as between themselves, they were joint owners. So
when Alderman sold to him his one-half interest, and he transferred
to his brother the two-thirds of that one-half interest, the
significance of it, as expressed by the appellant himself, was
something more than a mere stock transaction. As he says in his
letter, after purchasing Alderman's interest, he consented to let
appellee have two-thirds of such purchase. It is difficult to
believe that by this transaction nothing more was meant than a
transfer of stock. Obviously he understood that two-thirds of
Alderman's interest passed to appellee. Suppose Alderman had not
sold -- can it be doubted that equity would regard them as jointly
the owners of this property, although their ownership was evidenced
by separate shares of stock? Would equity tolerate
Page 138 U. S. 271
any transaction by which appellant, securing the influence of a
few shares of stock held by the nominal directors, should obtain
bonds or contracts by which the value of the stock would be
substantially destroyed and he become the real owner? Bonds issued
might by valid in law, and apparently prior to the stock; contracts
might give superior rights; yet is it not clear that equity would
interfere if he, by collusion with the resident directors,
attempted to ignore Alderman and create in himself a supremacy of
ownership? That which is true when there was equality of ownership
between himself and Alderman is also true when, by a subdivision of
Alderman's interest, a like ownership, as between himself and his
brother, was established on a different basis.
We conclude, therefore, that the circuit court was right when,
in view of this contract and the other testimony, it adjudged that
the relationship between the brothers was not that of mere
stockholders in a corporation, but that of joint owners in a common
enterprise, the profits and losses of which were to be shared
between them in the proportion of their respective interests. If
that be, as we think, the true interpretation of the relations
between them, we do not understand that the appellant presents any
substantial objection to the form and terms of the decree. It is
therefore
Affirmed.
MR. JUSTICE BROWN did not sit in this case, and took no part in
its decision.
