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to, exception was overruled, an appeal thereupon was taken to the Circuit Court of Appeals of this circuit, which reversed the lower court, and directed the last sale to be set aside and the second sale to Sturgiss at $200,200 to be confirmed. See Sturgiss v. Corbin, 72 C. C. A. 179, 141 Fed. 1. It is in evidence here now that in the last sale so set aside Frazer was acting as agent and through orders of the defendants Hitchings and Palliser.
It may be stated, also, that the last sale at $220,000 would have paid substantially all the debts of the company, including the par value of the bonds. It is fairly to be assumed from the evidence that either before or after his purchase of the property, and in view of the probable requirements of his apparently unfortunate contract to buy and sell it to the American Tin Plate Company, that Sturgiss bought up the outstanding debts of the company. Certain it is that by his petition he shows himself to be the owner of all the debts involved here, and the evidence shows that the original plaintiff, the Canton Roll & Machine Company, was but the American Tin Plate Company in fact, all of its stock belonging to and all its acts being controlled by the latter, and that its debt was obtained by Sturgiss through the direction of the latter by assignment by its attorney acting as secretary of plaintiff company under the American Tin Plate Company's directions. Under the circumstances, can Sturgiss successfully assail the sale of these bonds ? I think not for several reasons.
First. Because from the evidence I believe Frank Logan to be the bona fide purchaser and owner thereof; at least, I believe the evidence to be wholly insufficient to show the contrary. All the undisputed facts that tend to the contrary can be reasonably accounted for. The fact that he was the brother of W. J. Logan and used his bank account to pay for them is not sufficient, in the absence of any evidence that he was not a man of means and had no authority to do so. It is to be remembered that plaintiff called these defendants, made them its witnesses, and, contrary to all rules of evidence in this state and at common law, proceeded to subject them as its own witnesses to the most extended cross-examination. W. J. Logan was so subjected, yet no effort was made to substantiate these facts. Again, it is no badge of fraud that Frank Logan may have had business connection with Hitchings and Palliser, and was on intimate relations with them. The fact that this was so is a very reasonable explanation of how he was led to purchase these bonds. Finally, the fact that he authorized Palliser to give Sturgiss the option for the purchase of them can very reasonably be explained upon the theory that, finding after his purchase that he was in danger of losing in the transaction, he may have very well concluded that he had better sell $75,000 of them for what substantially he gave for them, but retaining the other $25,000 in hope of a happier turn in affairs. As I have heretofore said, the declaration of Meurer and Palliser tending to show interest are fully denied and on their face seem to me to be improbable. On the other hand, these defendants by answer and in evidence have denied any and all interest in these bonds. They have done so upon their introduction by plaintiff as its witnesses, and I think it must be bound by their statements in regard thereto.
Second. Even if these bonds were bought by Frank Logan for his brother, and these other defendants have an interest in them, I conceive that Sturgiss cannot make this assault because he does not, under all the circumstances, come into this court of equity with clean hands to do so. So long as there was probability of his being able to purchase these bonds at about what they sold for, he stood ready to uphold the integrity of their sale. As attorney, he prepared, or at least supervised, interlined, and added to, the answers to be filed by the Morgantown Tin Plate Company to the suits of some of its creditors pending in the state court, in which in full and specific terms all fraud was denied either in the hypothecation, sale, or holding thereunder of these bonds, and it was only after he had changed his mind about the purchase of the bonds, and had concluded his secret agreement to buy and sell the property to the American Tin Plate Company which involved the purchase of these outstanding debts in order to clear title, that he changed front. It is a source of bitter complaint against defendants that the name of the purchaser of the bonds was not disclosed. On the other hand, it may be pertinently asked if Sturgiss disclosed to his fellow stockholders the fact that he had a contract with this American Tin Plate Company whereby it agreed to pay $130,000 or thereabouts for the property. If he had, possibly a concerted action on the part of all concerned would have led to its immediate sale, a composition with creditors, and an ending of the whole matter, for this price was about twice as much as any one then thought the property would sell for. He did not inform his costockholders of this contract; on the contrary, he kept it secret, and its production is refused up to this time. Had he purchased this property at $50,000, which he already had a contract to sell for $130,000 would he, after buying in the debts for a few cents on the dollar which he could then have done, have divided any profit with his co-stockholders? It would seem not. When the shoe gets on the other foot, has he right to say in effect: "I expected to come out in the sale of the property, and left you to try to come out in the sale of the bonds. We both were keeping our plans secret from each other. Your plan was successful, while mine was a dead failure. Now I demand you give me the full benefit your success brought you to save me from the loss my failure brought me”? I think not. It is no longer in effect a question between stockholders and creditors, but between costockholders. Had Sturgiss allowed the $220,000 sale last made to Frazer to stand as I have said, all debts would have been paid substantially in full without further controversy.
Third. If it be held that this sale of bonds was in fact made to W. J. Logan and that other New York stockholders have an interest in them, even then I conceive Sturgiss cannot make this assault for another reason. He was an attorney at law, and was clearly acting as such for this bankrupt company and for these nonresident stockholders. He prepared for them substantially the charter papers, revised and corrected the minutes and records of its directors' and stockholders' meetings, prepared the mortgage, defended the suits, and sent written opinions to the New York officers, defendants here, as to the validity of these debts and the liens claimed for them. It seems to me the relation of attorney and client could not be more fully established. It is well settled that an attorney cannot purchase the debt against which he has engaged to defend and then proceed to prosecute such debt, either in his own or an assignee's name, without the consent of his client. Baker v. Humphrey, 101 U. S. 494, 25 L. Ed. 1065; Chaffin v. Hull (C. C.) 49 Fed. 524. In 4 Cyc. 959, in notes, more than 30 cases are cited from the courts of this country, Canada, and England to sustain this doctrine. Perhaps no court has gone further in this direction than our own Supreme Court of Appeals in Newcomb v. Brooks, 16 W. Va. 32, where Judge Green, in an elaborate opinion, has extended the principle to all fiduciary relations, and has expressed doubt whether an attorney in any case, even with the consent of his client, can purchase property sold for the benefit of his client at judicial sale pending the suits, or on an execution after judgnient.
Finally, the Morgantown Tin Plate Company was adjudged bankrupt. By election of creditors Corbin was elected trustee.
He thereby became clothed by the bankrupt law with full and plenary power, as the legal representative of these creditors here, to institute suits to recover the bankrupt's property, to set aside its fraudulent conveyances, to intervene in pending suits instituted by others for such purposes, and to contest claims asserted against such bankrupt's estate. In discharge of his duties, and without protest, so far as shown, from any of these creditors whose legal representative he was, he did intervene in the suits pending in the state courts, filed his sworn answers wherein he repudiated all effort to impeach the sale of these bonds, denied all fraud charged, and set forth the details under which it was made. The allegations of his answers in this respect have hereinbefore been set out. He is clearly estopped by this action on his part from now, in this suit, changing front and from assailing this transaction. As well said by Mr. Bigelow in his work on Estoppel (3d Ed.) c. 24, p. 601:
"If parties in court were permitted to assume inconsistent positions in the trial of their causes, the usefulness of courts of justice would in most cases be paralyzed, the coercive process of the law, available only between those who consented to its exercise, could be set at naught by all. But the rights of all men, honest and dishonest, are in the keeping of the courts, and consistency of proceeding is therefore required of all those who come or are brought before them.”
And in Railway Co. v. McCarthy, 96 U. S. 258, 24 L. Ed. 693, Mr. Justice Swayne says:
“When a party gives a reason for his conduct and decision touching anything involved in a controversy, he cannot, after litigation has begun, change his ground, and put his conduct upon another and a different consideration. He is not permitted thus to amend his hold. He is estopped from doing it by a. settled principle of law”-citing authorities.
For reasons indicated, I do not believe this cause can be maintained, either by the original plaintiff or by the intervening petitioners, and it must be dismissed, with costs against them.
HANSON v. W. L. BLAKE & CO. et al.
(District Court, D. Maine. August 3, 1907.)
1. BANKRUPTCY-LIENS-EQUITABLE RIGHTS UNDER UNRECORDED MORTGAGE.
Claimant was given a mortgage on a sawmill building and a part, but not all, of the machinery therein, which mortgage was not recorded in the town where the mortgagor resided, as required by the statute of the state in case of chattel mortgages. The mill burned, and the property was partially destroyed, and several months afterward the mortgagor was adjudged a bankrupt, and his trustee took possession of and sold the remnants of the mill property. After the adjudication claimant recorded her mortgage, but in the meantime took no steps to obtain possession of any of such property or to assert any right thereto under the mortgage. Held that, under the facts, she had no equitable claim to the proceeds of such property which could be enforced against the trustee in bankruptcy.
[Ed. Note.--For cases in point, see Cent. Dig. vol. 6, Bankruptcy, $
276.] 2. SAME-PROCEEDS OF INSURANCE.
The mortgagor, however, having taken out a policy of insurance on the property payable to the claimant as her interest might appear, in accordance with an agreement made when the debt was created, she had an equitable lien on the proceeds of such policy enforceable as against the trustee in bankruptcy.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 6, Bankruptcy, $ 295.] 3. SAME-PROPERTY HELD UNDER CONDITIONAL SALE CONTRACTS.
Claimants sold machinery and other supplies to be used in the construction and equipment of a sawmill, taking notes therefor reciting that the title to the property should remain in the sellers until the notes were fully paid. Such notes were not recorded as required by the statute of the state in case of conditional sales. The mill and a part of the machinery were destroyed by fire, and subsequently the purchaser was adjudged a bankrupt, and the remnants, consisting in part of the property sold to the bankrupt by claimants and in part of other property, were sold by the trustee. Held, that the facts were not sufficient to impress the fund arising from such sale with an equitable claim in favor of claim
ants arising out of the conditional sale notes. 4. SAME-PROCEEDS OF INSURANCE.
Where a bankrupt, on a purchase of property under contracts of conditional sale, orally agreed to insure the same for the benefit of the sellers until it should be fully paid for, and actually procured a policy of insurance thereon payable to them as their interest might appear, which was delivered to them, on a destruction of the property by fire the fund arising from the insurance, was impressed with an equitable lien in favor of the sellers arising out of the agreement and enforceable as against the trustee in bankruptcy, even though the bankrupt had a renewal policy made payable to another than the sellers, of which fact they
had no knowledge. & SAME-PREFERENCE-ASSIGNMENT OF CLAIM FOR INSURANCE.
The assignment by a bankrupt within four months prior to his bankruptcy and while insolvent of a claim against an insurance company for a fire loss to secure a prior indebtedness was void as a preference, and created no legal or equitable lien in favor of the assignee to the insurance money as against the trustee in bankruptcy.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 6, Bankruptcy, $ 247.] 6. MORTGAGES-CHARACTER OF INSTRUMENT—MORTGAGE OF BUILDING TO OWN
ER OF LAND.
A mortgage taken by the owner of land on a mill built thereon with his consent, under an oral agreement that on subsequent payment of an agreed price he would convey the title, is not a mortgage of real estate.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 35, Mortgages, $ 10.] 7. BANKRUPTCY-AGREEMENT TO INSURE — EQUITABLE LIEN ON INSURANCE
An oral agreement by a mortgagor to insure the property for the benefit of the mortgagee whose money was used in its purchase and construction gives the mortgagee an equitable lien upon the proceeds of the insurance after the property has been destroyed by fire, as against the mortgagor or his trustee in bankruptcy, although such agreement was made after the mortgage was given and the policies had been issued which were not in terms for the mortgagee's benefit.
[Ed. Note.—For cases in point, see Cent. Dig. vol. 6, Bankruptcy, § 295.] In Equity. George M. Hanson, pro se. Benjamin Thompson and James H. Gray, for W. L. Blake & Co. Ashley St. Clair, for Mynia A. Young. Fred V. Pickard, for Arabella Hicks. Clement B. Donworth and M. M. McKusick, for E. A. Holbrook.
HALE, District Judge. This cause in equity is heard upon bill and answer and proofs. The bill seeks to determine the rights of the trustee in bankruptcy and of several claimants, who are made respondents, in and to certain moneys arising from the sale of the remnants of a sawmill, its machinery, and appliances, and from the adjustment of certain fire insurance after the loss by fire of the bankrupt's mill.
Statement of the Case. It appears from the record that the bankrupt, Ira Hicks, was a resident of Calais, Me. In September, 1901, he entered into an oral agreement with respondent, Edward A. Holbrook, and one Charles A. Hunter, respecting the purchase from them of certain real estate situated at Vanceboro, in this district, upon which Hicks then intended to erect a sawmill. Under this agreement, Hicks was to have a mill privilege upon the land of Holbrook and Hunter for the sum of $75. No deed was ever made conveying the property to Hicks. Holbrook testifies that:
“Payment was to be made after he [Hicks] bad completed his building, and had run sufficient time so that he could pay for it. The deed was to be given at the completion of payment. The substance was we tried to make it possible for him to pay for it at a time after he had got out of the strain necessary for him in starting, and be able to collect himself and settle. We were not in need of the money and he was.”
He thus describes the land:
"A piece of land on the river with a frontage of between 10 and 15 rods extending back to the line of the old New Brunswick Railroad bed; and we took stakes and drove them at the four points of the four corners that would include the lot of land which he should occupy.”
Hicks immediately commenced to erect a mill building about 30 by 40 feet in size, and an engine house. In this construction work he